Financial Statements - Apple Inc. (AAPL) - All Years

Years: 2018, 2019, 2020, 2021, 2022

YEAR 2022
Item 8. Financial Statements and Supplementary Data
Index to Consolidated Financial StatementsPage
All financial statement schedules have been omitted, since the required information is not applicable or is not present in amounts sufficient to require submission of the schedule, or because the information required is included in the consolidated financial statements and accompanying notes.
Apple Inc. | 2022 Form 10-K | 28

Apple Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In millions, except number of shares which are reflected in thousands and per share amounts)

Years ended
September 24,
2022		September 25,
2021		September 26,
2020
Net sales:
Products$316,199 $297,392 $220,747 
Services78,129 68,425 53,768 
Total net sales394,328 365,817 274,515 
Cost of sales:
Products201,471 192,266 151,286 
Services22,075 20,715 18,273 
Total cost of sales223,546 212,981 169,559 
Gross margin170,782 152,836 104,956 
Operating expenses:
Research and development
26,251 21,914 18,752 
Selling, general and administrative
25,094 21,973 19,916 
Total operating expenses
51,345 43,887 38,668 
Operating income
119,437 108,949 66,288 
Other income/(expense), net
(334)258 803 
Income before provision for income taxes
119,103 109,207 67,091 
Provision for income taxes
19,300 14,527 9,680 
Net income
$99,803 $94,680 $57,411 
Earnings per share:
Basic
$6.15 $5.67 $3.31 
Diluted
$6.11 $5.61 $3.28 
Shares used in computing earnings per share:
Basic
16,215,963 16,701,272 17,352,119 
Diluted
16,325,819 16,864,919 17,528,214 
See accompanying Notes to Consolidated Financial Statements.
Apple Inc. | 2022 Form 10-K | 29

Apple Inc.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In millions)

Years ended
September 24,
2022		September 25,
2021		September 26,
2020
Net income
$99,803 $94,680 $57,411 
Other comprehensive income/(loss):
Change in foreign currency translation, net of tax
(1,511)501 88 
Change in unrealized gains/losses on derivative instruments, net of tax:
Change in fair value of derivative instruments3,212 32 79 
Adjustment for net (gains)/losses realized and included in net income
(1,074)1,003 (1,264)
Total change in unrealized gains/losses on derivative instruments2,138 1,035 (1,185)
Change in unrealized gains/losses on marketable debt securities, net of tax:
Change in fair value of marketable debt securities
(12,104)(694)1,202 
Adjustment for net (gains)/losses realized and included in net income
205 (273)(63)
Total change in unrealized gains/losses on marketable debt securities
(11,899)(967)1,139 
Total other comprehensive income/(loss)
(11,272)569 42 
Total comprehensive income
$88,531 $95,249 $57,453 
See accompanying Notes to Consolidated Financial Statements.
Apple Inc. | 2022 Form 10-K | 30

Apple Inc.
CONSOLIDATED BALANCE SHEETS
(In millions, except number of shares which are reflected in thousands and par value)

September 24,
2022		September 25,
2021
ASSETS:
Current assets:
Cash and cash equivalents
$23,646 $34,940 
Marketable securities
24,658 27,699 
Accounts receivable, net
28,184 26,278 
Inventories
4,946 6,580 
Vendor non-trade receivables
32,748 25,228 
Other current assets
21,223 14,111 
Total current assets
135,405 134,836 
Non-current assets:
Marketable securities
120,805 127,877 
Property, plant and equipment, net
42,117 39,440 
Other non-current assets
54,428 48,849 
Total non-current assets
217,350 216,166 
Total assets
$352,755 $351,002 
LIABILITIES AND SHAREHOLDERS’ EQUITY:
Current liabilities:
Accounts payable
$64,115 $54,763 
Other current liabilities
60,845 47,493 
Deferred revenue
7,912 7,612 
Commercial paper
9,982 6,000 
Term debt
11,128 9,613 
Total current liabilities
153,982 125,481 
Non-current liabilities:
Term debt
98,959 109,106 
Other non-current liabilities
49,142 53,325 
Total non-current liabilities
148,101 162,431 
Total liabilities
302,083 287,912 
Commitments and contingencies
Shareholders’ equity:
Common stock and additional paid-in capital, $0.00001 par value: 50,400,000 shares authorized; 15,943,425 and 16,426,786 shares issued and outstanding, respectively
64,849 57,365 
Retained earnings/(Accumulated deficit)(3,068)5,562 
Accumulated other comprehensive income/(loss)
(11,109)163 
Total shareholders’ equity
50,672 63,090 
Total liabilities and shareholders’ equity
$352,755 $351,002 
See accompanying Notes to Consolidated Financial Statements.
Apple Inc. | 2022 Form 10-K | 31

Apple Inc.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(In millions, except per share amounts)

Years ended
September 24,
2022		September 25,
2021		September 26,
2020
Total shareholders’ equity, beginning balances$63,090 $65,339 $90,488 
Common stock and additional paid-in capital:
Beginning balances57,365 50,779 45,174 
Common stock issued
1,175 1,105 880 
Common stock withheld related to net share settlement of equity awards
(2,971)(2,627)(2,250)
Share-based compensation9,280 8,108 6,975 
Ending balances64,849 57,365 50,779 
Retained earnings/(Accumulated deficit):
Beginning balances5,562 14,966 45,898 
Net income99,803 94,680 57,411 
Dividends and dividend equivalents declared(14,793)(14,431)(14,087)
Common stock withheld related to net share settlement of equity awards
(3,454)(4,151)(1,604)
Common stock repurchased(90,186)(85,502)(72,516)
Cumulative effect of change in accounting principle— — (136)
Ending balances(3,068)5,562 14,966 
Accumulated other comprehensive income/(loss):
Beginning balances163 (406)(584)
Other comprehensive income/(loss)(11,272)569 42 
Cumulative effect of change in accounting principle— — 136 
Ending balances(11,109)163 (406)
Total shareholders’ equity, ending balances$50,672 $63,090 $65,339 
Dividends and dividend equivalents declared per share or RSU$0.90 $0.85 $0.795 
See accompanying Notes to Consolidated Financial Statements.
Apple Inc. | 2022 Form 10-K | 32

Apple Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)

Years ended
September 24,
2022		September 25,
2021		September 26,
2020
Cash, cash equivalents and restricted cash, beginning balances
$35,929 $39,789 $50,224 
Operating activities:
Net income
99,803 94,680 57,411 
Adjustments to reconcile net income to cash generated by operating activities:
Depreciation and amortization
11,104 11,284 11,056 
Share-based compensation expense
9,038 7,906 6,829 
Deferred income tax expense/(benefit)895 (4,774)(215)
Other
111 (147)(97)
Changes in operating assets and liabilities:
Accounts receivable, net
(1,823)(10,125)6,917 
Inventories
1,484 (2,642)(127)
Vendor non-trade receivables
(7,520)(3,903)1,553 
Other current and non-current assets
(6,499)(8,042)(9,588)
Accounts payable
9,448 12,326 (4,062)
Deferred revenue
478 1,676 2,081 
Other current and non-current liabilities
5,632 5,799 8,916 
Cash generated by operating activities122,151 104,038 80,674 
Investing activities:
Purchases of marketable securities
(76,923)(109,558)(114,938)
Proceeds from maturities of marketable securities
29,917 59,023 69,918 
Proceeds from sales of marketable securities
37,446 47,460 50,473 
Payments for acquisition of property, plant and equipment
(10,708)(11,085)(7,309)
Payments made in connection with business acquisitions, net
(306)(33)(1,524)
Other
(1,780)(352)(909)
Cash used in investing activities(22,354)(14,545)(4,289)
Financing activities:
Payments for taxes related to net share settlement of equity awards
(6,223)(6,556)(3,634)
Payments for dividends and dividend equivalents
(14,841)(14,467)(14,081)
Repurchases of common stock
(89,402)(85,971)(72,358)
Proceeds from issuance of term debt, net
5,465 20,393 16,091 
Repayments of term debt
(9,543)(8,750)(12,629)
Proceeds from/(Repayments of) commercial paper, net3,955 1,022 (963)
Other
(160)976 754 
Cash used in financing activities
(110,749)(93,353)(86,820)
Decrease in cash, cash equivalents and restricted cash(10,952)(3,860)(10,435)
Cash, cash equivalents and restricted cash, ending balances
$24,977 $35,929 $39,789 
Supplemental cash flow disclosure:
Cash paid for income taxes, net
$19,573 $25,385 $9,501 
Cash paid for interest
$2,865 $2,687 $3,002 
See accompanying Notes to Consolidated Financial Statements.
Apple Inc. | 2022 Form 10-K | 33

Apple Inc.
Notes to Consolidated Financial Statements
Note 1 – Summary of Significant Accounting Policies
Basis of Presentation and Preparation
The consolidated financial statements include the accounts of Apple Inc. and its wholly owned subsidiaries (collectively “Apple” or the “Company”). Intercompany accounts and transactions have been eliminated. The preparation of these consolidated financial statements and accompanying notes in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported. Actual results could differ materially from those estimates. Certain prior period amounts in the consolidated financial statements and accompanying notes have been reclassified to conform to the current period’s presentation.
The Company’s fiscal year is the 52- or 53-week period that ends on the last Saturday of September. An additional week is included in the first fiscal quarter every five or six years to realign the Company’s fiscal quarters with calendar quarters, which will occur in the first quarter of the Company’s fiscal year ending September 30, 2023. The Company’s fiscal years 2022, 2021 and 2020 spanned 52 weeks each. Unless otherwise stated, references to particular years, quarters, months and periods refer to the Company’s fiscal years ended in September and the associated quarters, months and periods of those fiscal years.
Revenue Recognition
Net sales consist of revenue from the sale of iPhone, Mac, iPad, Services and other products. The Company recognizes revenue at the amount to which it expects to be entitled when control of the products or services is transferred to its customers. Control is generally transferred when the Company has a present right to payment and title and the significant risks and rewards of ownership of products or services are transferred to its customers. For most of the Company’s Products net sales, control transfers when products are shipped. For the Company’s Services net sales, control transfers over time as services are delivered. Payment for Products and Services net sales is collected within a short period following transfer of control or commencement of delivery of services, as applicable.
The Company records reductions to Products net sales related to future product returns, price protection and other customer incentive programs based on the Company’s expectations and historical experience.
For arrangements with multiple performance obligations, which represent promises within an arrangement that are distinct, the Company allocates revenue to all distinct performance obligations based on their relative stand-alone selling prices (“SSPs”). When available, the Company uses observable prices to determine SSPs. When observable prices are not available, SSPs are established that reflect the Company’s best estimates of what the selling prices of the performance obligations would be if they were sold regularly on a stand-alone basis. The Company’s process for estimating SSPs without observable prices considers multiple factors that may vary depending upon the unique facts and circumstances related to each performance obligation including, where applicable, prices charged by the Company for similar offerings, market trends in the pricing for similar offerings, product-specific business objectives and the estimated cost to provide the performance obligation.
The Company has identified up to three performance obligations regularly included in arrangements involving the sale of iPhone, Mac, iPad and certain other products. The first performance obligation, which represents the substantial portion of the allocated sales price, is the hardware and bundled software delivered at the time of sale. The second performance obligation is the right to receive certain product-related bundled services, which include iCloud®, Siri® and Maps. The third performance obligation is the right to receive, on a when-and-if-available basis, future unspecified software upgrades relating to the software bundled with each device. The Company allocates revenue and any related discounts to these performance obligations based on their relative SSPs. Because the Company lacks observable prices for the undelivered performance obligations, the allocation of revenue is based on the Company’s estimated SSPs. Revenue allocated to the delivered hardware and bundled software is recognized when control has transferred to the customer, which generally occurs when the product is shipped. Revenue allocated to the product-related bundled services and unspecified software upgrade rights is deferred and recognized on a straight-line basis over the estimated period they are expected to be provided. Cost of sales related to delivered hardware and bundled software, including estimated warranty costs, are recognized at the time of sale. Costs incurred to provide product-related bundled services and unspecified software upgrade rights are recognized as cost of sales as incurred.
For certain long-term service arrangements, the Company has performance obligations for services it has not yet delivered. For these arrangements, the Company does not have a right to bill for the undelivered services. The Company has determined that any unbilled consideration relates entirely to the value of the undelivered services. Accordingly, the Company has not recognized revenue, and does not disclose amounts, related to these undelivered services.
Apple Inc. | 2022 Form 10-K | 34

For the sale of third-party products where the Company obtains control of the product before transferring it to the customer, the Company recognizes revenue based on the gross amount billed to customers. The Company considers multiple factors when determining whether it obtains control of third-party products, including evaluating if it can establish the price of the product, retains inventory risk for tangible products or has the responsibility for ensuring acceptability of the product. For third-party applications sold through the App Store and certain digital content sold through the Company’s other digital content stores, the Company does not obtain control of the product before transferring it to the customer. Therefore, the Company accounts for such sales on a net basis by recognizing in Services net sales only the commission it retains.
The Company records revenue net of taxes collected from customers that are remitted to governmental authorities, with the collected taxes recorded within other current liabilities until remitted to the relevant government authority.
Share-Based Compensation
The Company generally measures share-based compensation based on the closing price of the Company’s common stock on the date of grant, and recognizes expense on a straight-line basis for its estimate of equity awards that will ultimately vest. Further information regarding share-based compensation can be found in Note 9, “Benefit Plans.”
Earnings Per Share
The following table shows the computation of basic and diluted earnings per share for 2022, 2021 and 2020 (net income in millions and shares in thousands):
202220212020
Numerator:
Net income
$99,803 $94,680 $57,411 
Denominator:
Weighted-average basic shares outstanding
16,215,963 16,701,272 17,352,119 
Effect of dilutive securities
109,856 163,647 176,095 
Weighted-average diluted shares
16,325,819 16,864,919 17,528,214 
Basic earnings per share
$6.15 $5.67 $3.31 
Diluted earnings per share
$6.11 $5.61 $3.28 
The Company applies the treasury stock method to determine the dilutive effect of potentially dilutive securities.
Cash Equivalents and Marketable Securities
All highly liquid investments with maturities of three months or less at the date of purchase are classified as cash equivalents.
The Company’s investments in marketable debt securities have been classified and accounted for as available-for-sale. The Company classifies its marketable debt securities as either short-term or long-term based on each instrument’s underlying contractual maturity date.
The Company’s investments in marketable equity securities are classified based on the nature of the securities and their availability for use in current operations.
The cost of securities sold is determined using the specific identification method.
Inventories
Inventories are measured using the first-in, first-out method.
Apple Inc. | 2022 Form 10-K | 35

Restricted Marketable Securities
The Company considers marketable securities to be restricted when withdrawal or general use is legally restricted. The Company reports restricted marketable securities as current or non-current marketable securities in the Consolidated Balance Sheets based on the classification of the underlying securities.
Property, Plant and Equipment
Depreciation on property, plant and equipment is recognized on a straight-line basis over the estimated useful lives of the assets, which for buildings is the shorter of 40 years or the remaining life of the building; between one and five years for machinery and equipment, including manufacturing equipment; and the shorter of the lease term or useful life for leasehold improvements. Capitalized costs related to internal-use software are amortized on a straight-line basis over the estimated useful lives of the assets, which range from five to seven years. Depreciation and amortization expense on property, plant and equipment was $8.7 billion, $9.5 billion and $9.7 billion during 2022, 2021 and 2020, respectively.
Derivative Instruments and Hedging
All derivative instruments are recorded in the Consolidated Balance Sheets at fair value. The accounting treatment for derivative gains and losses is based on intended use and hedge designation.
Gains and losses arising from amounts that are included in the assessment of cash flow hedge effectiveness are initially deferred in accumulated other comprehensive income/(loss) (“AOCI”) and subsequently reclassified into earnings when the hedged transaction affects earnings, and in the same line item in the Consolidated Statements of Operations. For options designated as cash flow hedges, the Company excludes time value from the assessment of hedge effectiveness and recognizes it on a straight-line basis over the life of the hedge in the Consolidated Statements of Operations line item to which the hedge relates. Changes in the fair value of amounts excluded from the assessment of hedge effectiveness are recognized in other comprehensive income/(loss) (“OCI”).
Gains and losses arising from amounts that are included in the assessment of fair value hedge effectiveness are recognized in the Consolidated Statements of Operations line item to which the hedge relates along with offsetting losses and gains related to the change in value of the hedged item. For foreign exchange forward contracts designated as fair value hedges, the Company excludes the forward carry component from the assessment of hedge effectiveness and recognizes it in other income/(expense), net (“OI&E”) on a straight-line basis over the life of the hedge. Changes in the fair value of amounts excluded from the assessment of hedge effectiveness are recognized in OCI.
Gains and losses arising from changes in the fair values of derivative instruments that are not designated as accounting hedges are recognized in the Consolidated Statements of Operations line items to which the derivative instruments relate.
The Company presents derivative assets and liabilities at their gross fair values in the Consolidated Balance Sheets. The Company classifies cash flows related to derivative instruments as operating activities in the Consolidated Statements of Cash Flows.
Fair Value Measurements
The fair values of the Company’s money market funds and certain marketable equity securities are based on quoted prices in active markets for identical assets. The valuation techniques used to measure the fair value of the Company’s debt instruments and all other financial instruments, which generally have counterparties with high credit ratings, are based on quoted market prices or model-driven valuations using significant inputs derived from or corroborated by observable market data.
Income Taxes
The Company records certain deferred tax assets and liabilities in connection with the minimum tax on certain foreign earnings created by the U.S. Tax Cuts and Jobs Act of 2017 (the “Act”).
Leases
The Company combines and accounts for lease and nonlease components as a single lease component for leases of corporate, data center and retail facilities. The discount rates related to the Company’s lease liabilities are generally based on estimates of the Company’s incremental borrowing rate, as the discount rates implicit in the Company’s leases cannot be readily determined.
Apple Inc. | 2022 Form 10-K | 36

Segment Reporting
The Company reports segment information based on the “management” approach. The management approach designates the internal reporting used by management for making decisions and assessing performance as the source of the Company’s reportable segments.
The Company manages its business primarily on a geographic basis. The Company’s reportable segments consist of the Americas, Europe, Greater China, Japan and Rest of Asia Pacific. Americas includes both North and South America. Europe includes European countries, as well as India, the Middle East and Africa. Greater China includes China mainland, Hong Kong and Taiwan. Rest of Asia Pacific includes Australia and those Asian countries not included in the Company’s other reportable segments. Although the reportable segments provide similar hardware and software products and similar services, each one is managed separately to better align with the location of the Company’s customers and distribution partners and the unique market dynamics of each geographic region. The accounting policies of the various segments are the same as those described elsewhere in this Note 1, “Summary of Significant Accounting Policies.”
The Company evaluates the performance of its reportable segments based on net sales and operating income. Net sales for geographic segments are generally based on the location of customers and sales through the Company’s retail stores located in those geographic locations. Operating income for each segment includes net sales to third parties, related cost of sales and operating expenses directly attributable to the segment. Advertising expenses are generally included in the geographic segment in which the expenditures are incurred. Operating income for each segment excludes other income and expense and certain expenses managed outside the reportable segments. Costs excluded from segment operating income include various corporate expenses such as research and development (“R&D”), corporate marketing expenses, certain share-based compensation expenses, income taxes, various nonrecurring charges and other separately managed general and administrative costs. The Company does not include intercompany transfers between segments for management reporting purposes.
Note 2 – Revenue
Net sales disaggregated by significant products and services for 2022, 2021 and 2020 were as follows (in millions):
202220212020
iPhone (1)
$205,489 $191,973 $137,781 
Mac (1)
40,177 35,190 28,622 
iPad (1)
29,292 31,862 23,724 
Wearables, Home and Accessories (1)(2)
41,241 38,367 30,620 
Services (3)
78,129 68,425 53,768 
Total net sales (4)
$394,328 $365,817 $274,515 
(1)Products net sales include amortization of the deferred value of unspecified software upgrade rights, which are bundled in the sales price of the respective product.
(2)Wearables, Home and Accessories net sales include sales of AirPods, Apple TV, Apple Watch, Beats products, HomePod mini and accessories.
(3)Services net sales include sales from the Company’s advertising, AppleCare, cloud, digital content, payment and other services. Services net sales also include amortization of the deferred value of services bundled in the sales price of certain products.
(4)Includes $7.5 billion of revenue recognized in 2022 that was included in deferred revenue as of September 25, 2021, $6.7 billion of revenue recognized in 2021 that was included in deferred revenue as of September 26, 2020, and $5.0 billion of revenue recognized in 2020 that was included in deferred revenue as of September 28, 2019.
The Company’s proportion of net sales by disaggregated revenue source was generally consistent for each reportable segment in Note 11, “Segment Information and Geographic Data” for 2022, 2021 and 2020, except in Greater China, where iPhone revenue represented a moderately higher proportion of net sales in 2022 and 2021.
As of September 24, 2022 and September 25, 2021, the Company had total deferred revenue of $12.4 billion and $11.9 billion, respectively. As of September 24, 2022, the Company expects 64% of total deferred revenue to be realized in less than a year, 27% within one-to-two years, 7% within two-to-three years and 2% in greater than three years.
Apple Inc. | 2022 Form 10-K | 37

Note 3 – Financial Instruments
Cash, Cash Equivalents and Marketable Securities
The following tables show the Company’s cash, cash equivalents and marketable securities by significant investment category as of September 24, 2022 and September 25, 2021 (in millions):
2022
Adjusted
Cost		Unrealized
Gains		Unrealized
Losses		Fair
Value		Cash and
Cash
Equivalents		Current
Marketable
Securities		Non-Current
Marketable
Securities
Cash
$18,546 $— $— $18,546 $18,546 $— $— 
Level 1 (1):
Money market funds2,929 — — 2,929 2,929 — — 
Mutual funds274 — (47)227 — 227 — 
Subtotal3,203 — (47)3,156 2,929 227 — 
Level 2 (2):
U.S. Treasury securities25,134 — (1,725)23,409 338 5,091 17,980 
U.S. agency securities5,823 — (655)5,168 — 240 4,928 
Non-U.S. government securities16,948 2 (1,201)15,749 — 8,806 6,943 
Certificates of deposit and time deposits
2,067 — — 2,067 1,805 262 — 
Commercial paper718 — — 718 28 690 — 
Corporate debt securities87,148 9 (7,707)79,450 — 9,023 70,427 
Municipal securities921 — (35)886 — 266 620 
Mortgage- and asset-backed securities
22,553 — (2,593)19,960 — 53 19,907 
Subtotal161,312 11 (13,916)147,407 2,171 24,431 120,805 
Total (3)
$183,061 $11 $(13,963)$169,109 $23,646 $24,658 $120,805 
2021
Adjusted
Cost		Unrealized
Gains		Unrealized
Losses		Fair
Value		Cash and
Cash
Equivalents		Current
Marketable
Securities		Non-Current
Marketable
Securities
Cash
$17,305 $— $— $17,305 $17,305 $— $— 
Level 1 (1):
Money market funds9,608 — — 9,608 9,608 — — 
Mutual funds175 11 (1)185 — 185 — 
Subtotal9,783 11 (1)9,793 9,608 185 — 
Level 2 (2):
Equity securities1,527 — (564)963 — 963 — 
U.S. Treasury securities22,878 102 (77)22,903 3,596 6,625 12,682 
U.S. agency securities
8,949 2 (64)8,887 1,775 1,930 5,182 
Non-U.S. government securities
20,201 211 (101)20,311 390 3,091 16,830 
Certificates of deposit and time deposits
1,300 — — 1,300 490 810 — 
Commercial paper
2,639 — — 2,639 1,776 863 — 
Corporate debt securities
83,883 1,242 (267)84,858 — 12,327 72,531 
Municipal securities
967 14 — 981 — 130 851 
Mortgage- and asset-backed securities
20,529 171 (124)20,576 — 775 19,801 
Subtotal162,873 1,742 (1,197)163,418 8,027 27,514 127,877 
Total (3)
$189,961 $1,753 $(1,198)$190,516 $34,940 $27,699 $127,877 
(1)Level 1 fair value estimates are based on quoted prices in active markets for identical assets or liabilities.
(2)Level 2 fair value estimates are based on observable inputs other than quoted prices in active markets for identical assets and liabilities, quoted prices for identical or similar assets or liabilities in inactive markets, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
(3)As of September 24, 2022 and September 25, 2021, total marketable securities included $12.7 billion and $17.9 billion, respectively, that were restricted from general use, related to the State Aid Decision (refer to Note 5, “Income Taxes”) and other agreements.
Apple Inc. | 2022 Form 10-K | 38

The following table shows the fair value of the Company’s non-current marketable debt securities, by contractual maturity, as of September 24, 2022 (in millions):
Due after 1 year through 5 years$87,031 
Due after 5 years through 10 years16,429 
Due after 10 years17,345 
Total fair value$120,805 
Derivative Instruments and Hedging
The Company may use derivative instruments to partially offset its business exposure to foreign exchange and interest rate risk. However, the Company may choose not to hedge certain exposures for a variety of reasons including accounting considerations or the prohibitive economic cost of hedging particular exposures. There can be no assurance the hedges will offset more than a portion of the financial impact resulting from movements in foreign exchange or interest rates.
Foreign Exchange Risk
To protect gross margins from fluctuations in foreign currency exchange rates, the Company may enter into forward contracts, option contracts or other instruments, and may designate these instruments as cash flow hedges. The Company generally hedges portions of its forecasted foreign currency exposure associated with revenue and inventory purchases, typically for up to 12 months.
To protect the Company’s foreign currency–denominated term debt or marketable securities from fluctuations in foreign currency exchange rates, the Company may enter into forward contracts, cross-currency swaps or other instruments. The Company designates these instruments as either cash flow or fair value hedges. As of September 24, 2022, the maximum length of time over which the Company is hedging its exposure to the variability in future cash flows for term debt–related foreign currency transactions is 20 years.
The Company may also enter into derivative instruments that are not designated as accounting hedges to protect gross margins from certain fluctuations in foreign currency exchange rates, as well as to offset a portion of the foreign currency exchange gains and losses generated by the remeasurement of certain assets and liabilities denominated in non-functional currencies.
Interest Rate Risk
To protect the Company’s term debt or marketable securities from fluctuations in interest rates, the Company may enter into interest rate swaps, options or other instruments. The Company designates these instruments as either cash flow or fair value hedges.
The notional amounts of the Company’s outstanding derivative instruments as of September 24, 2022 and September 25, 2021 were as follows (in millions):
20222021
Derivative instruments designated as accounting hedges:
Foreign exchange contracts
$102,670 $76,475 
Interest rate contracts
$20,125 $16,875 
Derivative instruments not designated as accounting hedges:
Foreign exchange contracts
$185,381 $126,918 
Apple Inc. | 2022 Form 10-K | 39

The gross fair values of the Company’s derivative assets and liabilities as of September 24, 2022 were as follows (in millions):
2022
Fair Value of
Derivatives Designated
as Accounting Hedges		Fair Value of
Derivatives Not Designated
as Accounting Hedges		Total
Fair Value
Derivative assets (1):
Foreign exchange contracts
$4,317 $2,819 $7,136 
Derivative liabilities (2):
Foreign exchange contracts
$2,205 $2,547 $4,752 
Interest rate contracts
$1,367 $— $1,367 
(1)Derivative assets are measured using Level 2 fair value inputs and are included in other current assets and other non-current assets in the Consolidated Balance Sheets.
(2)Derivative liabilities are measured using Level 2 fair value inputs and are included in other current liabilities and other non-current liabilities in the Consolidated Balance Sheets.
The derivative assets above represent the Company’s gross credit exposure if all counterparties failed to perform. To mitigate credit risk, the Company generally enters into collateral security arrangements that provide for collateral to be received or posted when the net fair values of certain derivatives fluctuate from contractually established thresholds. To further limit credit risk, the Company generally enters into master netting arrangements with the respective counterparties to the Company’s derivative contracts, under which the Company is allowed to settle transactions with a single net amount payable by one party to the other. As of September 24, 2022, the potential effects of these rights of set-off associated with the Company’s derivative contracts, including the effects of collateral, would be a reduction to both derivative assets and derivative liabilities of $7.8 billion, resulting in a net derivative asset of $412 million.
The carrying amounts of the Company’s hedged items in fair value hedges as of September 24, 2022 and September 25, 2021 were as follows (in millions):
20222021
Hedged assets/(liabilities):
Current and non-current marketable securities$13,378 $15,954 
Current and non-current term debt$(18,739)$(17,857)
Accounts Receivable
Trade Receivables
The Company has considerable trade receivables outstanding with its third-party cellular network carriers, wholesalers, retailers, resellers, small and mid-sized businesses and education, enterprise and government customers. The Company generally does not require collateral from its customers; however, the Company will require collateral or third-party credit support in certain instances to limit credit risk. In addition, when possible, the Company attempts to limit credit risk on trade receivables with credit insurance for certain customers or by requiring third-party financing, loans or leases to support credit exposure. These credit-financing arrangements are directly between the third-party financing company and the end customer. As such, the Company generally does not assume any recourse or credit risk sharing related to any of these arrangements.
As of September 24, 2022, the Company had one customer that represented 10% or more of total trade receivables, which accounted for 10%. The Company’s cellular network carriers accounted for 44% and 42% of total trade receivables as of September 24, 2022 and September 25, 2021, respectively.
Vendor Non-Trade Receivables
The Company has non-trade receivables from certain of its manufacturing vendors resulting from the sale of components to these vendors who manufacture subassemblies or assemble final products for the Company. The Company purchases these components directly from suppliers. As of September 24, 2022, the Company had two vendors that individually represented 10% or more of total vendor non-trade receivables, which accounted for 54% and 13%. As of September 25, 2021, the Company had three vendors that individually represented 10% or more of total vendor non-trade receivables, which accounted for 52%, 11% and 11%.
Apple Inc. | 2022 Form 10-K | 40

Note 4 – Consolidated Financial Statement Details
The following tables show the Company’s consolidated financial statement details as of September 24, 2022 and September 25, 2021 (in millions):
Property, Plant and Equipment, Net
20222021
Land and buildings
$22,126 $20,041 
Machinery, equipment and internal-use software
81,060 78,659 
Leasehold improvements
11,271 11,023 
Gross property, plant and equipment
114,457 109,723 
Accumulated depreciation and amortization
(72,340)(70,283)
Total property, plant and equipment, net
$42,117 $39,440 
Other Non-Current Liabilities
20222021
Long-term taxes payable$16,657 $24,689 
Other non-current liabilities
32,485 28,636 
Total other non-current liabilities
$49,142 $53,325 
Other Income/(Expense), Net
The following table shows the detail of OI&E for 2022, 2021 and 2020 (in millions):
202220212020
Interest and dividend income
$2,825 $2,843 $3,763 
Interest expense
(2,931)(2,645)(2,873)
Other income/(expense), net(228)60 (87)
Total other income/(expense), net
$(334)$258 $803 
Note 5 – Income Taxes
Provision for Income Taxes and Effective Tax Rate
The provision for income taxes for 2022, 2021 and 2020, consisted of the following (in millions):
202220212020
Federal:
Current
$7,890 $8,257 $6,306 
Deferred
(2,265)(7,176)(3,619)
Total
5,625 1,081 2,687 
State:
Current
1,519 1,620 455 
Deferred
84 (338)21 
Total
1,603 1,282 476 
Foreign:
Current
8,996 9,424 3,134 
Deferred
3,076 2,740 3,383 
Total
12,072 12,164 6,517 
Provision for income taxes
$19,300 $14,527 $9,680 
The foreign provision for income taxes is based on foreign pretax earnings of $71.3 billion, $68.7 billion and $38.1 billion in 2022, 2021 and 2020, respectively.
Apple Inc. | 2022 Form 10-K | 41

A reconciliation of the provision for income taxes to the amount computed by applying the statutory federal income tax rate (21% in 2022, 2021 and 2020) to income before provision for income taxes for 2022, 2021 and 2020, is as follows (dollars in millions):
202220212020
Computed expected tax
$25,012 $22,933 $14,089 
State taxes, net of federal effect
1,518 1,151 423 
Impacts of the Act542 — (582)
Earnings of foreign subsidiaries(4,366)(4,715)(2,534)
Foreign-derived intangible income deduction(296)(1,372)(169)
Research and development credit, net
(1,153)(1,033)(728)
Excess tax benefits from equity awards
(1,871)(2,137)(930)
Other
(86)(300)111 
Provision for income taxes
$19,300 $14,527 $9,680 
Effective tax rate
16.2 %13.3 %14.4 %
Deferred Tax Assets and Liabilities
As of September 24, 2022 and September 25, 2021, the significant components of the Company’s deferred tax assets and liabilities were (in millions):
20222021
Deferred tax assets:
Amortization and depreciation
$1,496 $5,575 
Accrued liabilities and other reserves
6,515 5,895 
Lease liabilities2,400 2,406 
Deferred revenue5,742 5,399 
Unrealized losses2,913 53 
Tax credit carryforwards6,962 4,262 
Other1,596 1,639 
Total deferred tax assets27,624 25,229 
Less: Valuation allowance(7,530)(4,903)
Total deferred tax assets, net
20,094 20,326 
Deferred tax liabilities:
Minimum tax on foreign earnings
1,983 4,318 
Right-of-use assets2,163 2,167 
Unrealized gains942 203 
Other
469 565 
Total deferred tax liabilities
5,557 7,253 
Net deferred tax assets$14,537 $13,073 
As of September 24, 2022, the Company had $4.4 billion in foreign tax credit carryforwards in Ireland and $2.5 billion in California R&D credit carryforwards, both of which can be carried forward indefinitely. A valuation allowance has been recorded for the credit carryforwards and a portion of other temporary differences.
Apple Inc. | 2022 Form 10-K | 42

Uncertain Tax Positions
As of September 24, 2022, the total amount of gross unrecognized tax benefits was $16.8 billion, of which $8.0 billion, if recognized, would impact the Company’s effective tax rate. As of September 25, 2021, the total amount of gross unrecognized tax benefits was $15.5 billion, of which $6.6 billion, if recognized, would have impacted the Company’s effective tax rate.
The aggregate change in the balance of gross unrecognized tax benefits, which excludes interest and penalties, for 2022, 2021 and 2020, is as follows (in millions):
202220212020
Beginning balances
$15,477 $16,475 $15,619 
Increases related to tax positions taken during a prior year
2,284 816 454 
Decreases related to tax positions taken during a prior year
(1,982)(1,402)(791)
Increases related to tax positions taken during the current year
1,936 1,607 1,347 
Decreases related to settlements with taxing authorities
(28)(1,838)(85)
Decreases related to expiration of the statute of limitations
(929)(181)(69)
Ending balances
$16,758 $15,477 $16,475 
The Company is subject to taxation and files income tax returns in the U.S. federal jurisdiction and many state and foreign jurisdictions. Tax years after 2017 for the U.S. federal jurisdiction, and after 2014 in certain major foreign jurisdictions, remain subject to examination. Although the timing of resolution and/or closure of examinations is not certain, the Company believes it is reasonably possible that its gross unrecognized tax benefits could decrease in the next 12 months by as much as $4.8 billion.
European Commission State Aid Decision
On August 30, 2016, the European Commission announced its decision that Ireland granted state aid to the Company by providing tax opinions in 1991 and 2007 concerning the tax allocation of profits of the Irish branches of two subsidiaries of the Company (the “State Aid Decision”). The State Aid Decision ordered Ireland to calculate and recover additional taxes from the Company for the period June 2003 through December 2014. Irish legislative changes, effective as of January 2015, eliminated the application of the tax opinions from that date forward. The recovery amount was calculated to be €13.1 billion, plus interest of €1.2 billion. The Company and Ireland appealed the State Aid Decision to the General Court of the Court of Justice of the European Union (the “General Court”). On July 15, 2020, the General Court annulled the State Aid Decision. On September 25, 2020, the European Commission appealed the General Court’s decision to the European Court of Justice. The Company believes that any incremental Irish corporate income taxes potentially due related to the State Aid Decision would be creditable against U.S. taxes, subject to any foreign tax credit limitations in the Act.
On an annual basis, the Company may request approval from the Irish Minister for Finance to reduce the recovery amount for certain taxes paid to other countries. As of September 24, 2022, the adjusted recovery amount was €12.7 billion, excluding interest. The adjusted recovery amount plus interest is funded into escrow, where it will remain restricted from general use pending the conclusion of all legal proceedings. Refer to the Cash, Cash Equivalents and Marketable Securities section of Note 3, “Financial Instruments” for more information.
Note 6 – Leases
The Company has lease arrangements for certain equipment and facilities, including corporate, data center, manufacturing and retail space. These leases typically have original terms not exceeding 10 years and generally contain multiyear renewal options, some of which are reasonably certain of exercise.
Payments under the Company’s lease arrangements may be fixed or variable, and variable lease payments are primarily based on purchases of output of the underlying leased assets. Lease costs associated with fixed payments on the Company’s operating leases were $1.9 billion, $1.7 billion and $1.5 billion for 2022, 2021 and 2020, respectively. Lease costs associated with variable payments on the Company’s leases were $14.9 billion, $12.9 billion and $9.3 billion for 2022, 2021 and 2020, respectively.
The Company made $1.8 billion, $1.4 billion and $1.5 billion of fixed cash payments related to operating leases in 2022, 2021 and 2020, respectively. Noncash activities involving right-of-use (“ROU”) assets obtained in exchange for lease liabilities were $2.8 billion for 2022, $3.3 billion for 2021 and $10.5 billion for 2020, including the impact of adopting the Financial Accounting Standards Board’s Accounting Standards Update No. 2016-02, Leases (Topic 842) in the first quarter of 2020.
Apple Inc. | 2022 Form 10-K | 43

The following table shows ROU assets and lease liabilities, and the associated financial statement line items, as of September 24, 2022 and September 25, 2021 (in millions):
Lease-Related Assets and LiabilitiesFinancial Statement Line Items20222021
Right-of-use assets:
Operating leasesOther non-current assets$10,417 $10,087 
Finance leasesProperty, plant and equipment, net952 861 
Total right-of-use assets$11,369 $10,948 
Lease liabilities:
Operating leasesOther current liabilities$1,534 $1,449 
Other non-current liabilities9,936 9,506 
Finance leasesOther current liabilities129 79 
Other non-current liabilities812 769 
Total lease liabilities$12,411 $11,803 
Lease liability maturities as of September 24, 2022, are as follows (in millions):
Operating
Leases		Finance
Leases		Total
2023$1,758 $155 $1,913 
20241,742 130 1,872 
20251,677 81 1,758 
20261,382 48 1,430 
20271,143 34 1,177 
Thereafter5,080 906 5,986 
Total undiscounted liabilities12,782 1,354 14,136 
Less: Imputed interest(1,312)(413)(1,725)
Total lease liabilities$11,470 $941 $12,411 
The weighted-average remaining lease term related to the Company’s lease liabilities as of September 24, 2022 and September 25, 2021 was 10.1 years and 10.8 years, respectively. The discount rate related to the Company’s lease liabilities as of September 24, 2022 and September 25, 2021 was 2.3% and 2.0%, respectively.
As of September 24, 2022, the Company had $1.2 billion of future payments under additional leases, primarily for corporate facilities and retail space, that had not yet commenced. These leases will commence between 2023 and 2026, with lease terms ranging from less than 1 year to 21 years.
Apple Inc. | 2022 Form 10-K | 44

Note 7 – Debt
Commercial Paper and Repurchase Agreements
The Company issues unsecured short-term promissory notes (“Commercial Paper”) pursuant to a commercial paper program. The Company uses net proceeds from the commercial paper program for general corporate purposes, including dividends and share repurchases. As of September 24, 2022 and September 25, 2021, the Company had $10.0 billion and $6.0 billion of Commercial Paper outstanding, respectively, with maturities generally less than nine months. The weighted-average interest rate of the Company’s Commercial Paper was 2.31% and 0.06% as of September 24, 2022 and September 25, 2021, respectively. The following table provides a summary of cash flows associated with the issuance and maturities of Commercial Paper for 2022, 2021 and 2020 (in millions):
202220212020
Maturities 90 days or less:
Proceeds from/(Repayments of) commercial paper, net$5,264 $(357)$100 
Maturities greater than 90 days:
Proceeds from commercial paper
5,948 7,946 6,185 
Repayments of commercial paper
(7,257)(6,567)(7,248)
Proceeds from/(Repayments of) commercial paper, net(1,309)1,379 (1,063)
Total proceeds from/(repayments of) commercial paper, net$3,955 $1,022 $(963)
In 2020, the Company entered into agreements to sell certain of its marketable securities with a promise to repurchase the securities at a specified time and amount (“Repos”). Due to the Company’s continuing involvement with the marketable securities, the Company accounted for its Repos as collateralized borrowings. The Company entered into $5.2 billion of Repos during 2020, all of which had been settled as of September 26, 2020.
Term Debt
The Company has outstanding fixed-rate notes with varying maturities (collectively the “Notes”). The Notes are senior unsecured obligations and interest is payable in arrears. The following table provides a summary of the Company’s term debt as of September 24, 2022 and September 25, 2021:
Maturities
(calendar year)
20222021
Amount
(in millions)
Effective
Interest Rate
Amount
(in millions)
Effective
Interest Rate
2013 – 2021 debt issuances:
Floating-rate notes $— $1,750 
0.48% – 0.63%
Fixed-rate 0.000% – 4.650% notes
2022 – 2061
106,324 
0.03% – 4.78%
116,313 
0.03% – 4.78%
Fourth quarter 2022 debt issuance:
Fixed-rate 3.250% – 4.100% notes
2029 – 2062
5,500 
3.27% – 4.12%
—
Total term debt111,824 118,063 
Unamortized premium/(discount) and issuance costs, net
(374)(380)
Hedge accounting fair value adjustments(1,363)1,036 
Less: Current portion of term debt(11,128)(9,613)
Total non-current portion of term debt$98,959 $109,106 
To manage interest rate risk on certain of its U.S. dollar–denominated fixed-rate notes, the Company has entered into interest rate swaps to effectively convert the fixed interest rates to floating interest rates on a portion of these notes. Additionally, to manage foreign currency risk on certain of its foreign currency–denominated notes, the Company has entered into foreign currency swaps to effectively convert these notes to U.S. dollar–denominated notes.
The effective interest rates for the Notes include the interest on the Notes, amortization of the discount or premium and, if applicable, adjustments related to hedging. The Company recognized $2.8 billion, $2.6 billion and $2.8 billion of interest expense on its term debt for 2022, 2021 and 2020, respectively.
Apple Inc. | 2022 Form 10-K | 45

The future principal payments for the Company’s Notes as of September 24, 2022, are as follows (in millions):
2023$11,139 
20249,910 
202510,645 
202611,209 
20279,631 
Thereafter59,290 
Total term debt$111,824 
As of September 24, 2022 and September 25, 2021, the fair value of the Company’s Notes, based on Level 2 inputs, was $98.8 billion and $125.3 billion, respectively.
Note 8 – Shareholders’ Equity
Share Repurchase Program
During 2022, the Company repurchased 569 million shares of its common stock for $90.2 billion under a share repurchase program authorized by the Board of Directors (the “Program”). The Program does not obligate the Company to acquire a minimum amount of shares. Under the Program, shares may be repurchased in privately negotiated and/or open market transactions, including under plans complying with Rule 10b5-1 under the Securities Exchange Act of 1934, as amended.
Shares of Common Stock
The following table shows the changes in shares of common stock for 2022, 2021 and 2020 (in thousands):
202220212020
Common stock outstanding, beginning balances
16,426,786 16,976,763 17,772,945 
Common stock repurchased
(568,589)(656,340)(917,270)
Common stock issued, net of shares withheld for employee taxes
85,228 106,363 121,088 
Common stock outstanding, ending balances
15,943,425 16,426,786 16,976,763 
Note 9 – Benefit Plans
2022 Employee Stock Plan
In the second quarter of 2022, shareholders approved the Apple Inc. 2022 Employee Stock Plan (the “2022 Plan”), which provides for broad-based equity grants to employees, including executive officers, and permits the granting of restricted stock units (“RSUs”), stock grants, performance-based awards, stock options and stock appreciation rights. RSUs granted under the 2022 Plan generally vest over four years, based on continued employment, and are settled upon vesting in shares of the Company’s common stock on a one-for-one basis. RSUs granted under the 2022 Plan reduce the number of shares available for grant under the plan by a factor of two times the number of RSUs granted. RSUs canceled and shares withheld to satisfy tax withholding obligations increase the number of shares available for grant under the 2022 Plan utilizing a factor of two times the number of RSUs canceled or shares withheld. All RSUs granted under the 2022 Plan have dividend equivalent rights (“DERs”), which entitle holders of RSUs to the same dividend value per share as holders of common stock. DERs are subject to the same vesting and other terms and conditions as the underlying RSUs. A maximum of approximately 1.3 billion shares were authorized for issuance pursuant to 2022 Plan awards at the time the plan was approved on March 4, 2022.
2014 Employee Stock Plan
The Apple Inc. 2014 Employee Stock Plan (the “2014 Plan”) is a shareholder-approved plan that provided for broad-based equity grants to employees, including executive officers. The 2014 Plan permitted the granting of substantially the same types of equity awards with substantially the same terms as the 2022 Plan. The 2014 Plan also permitted the granting of cash bonus awards. In the third quarter of 2022, the Company terminated the authority to grant new awards under the 2014 Plan.
Apple Inc. | 2022 Form 10-K | 46

Apple Inc. Non-Employee Director Stock Plan
The Apple Inc. Non-Employee Director Stock Plan (the “Director Plan”) is a shareholder-approved plan that (i) permits the Company to grant awards of RSUs or stock options to the Company’s non-employee directors, (ii) provides for automatic initial grants of RSUs upon a non-employee director joining the Board of Directors and automatic annual grants of RSUs at each annual meeting of shareholders, and (iii) permits the Board of Directors to prospectively change the value and relative mixture of stock options and RSUs for the initial and annual award grants and the methodology for determining the number of shares of the Company’s common stock subject to these grants, in each case within the limits set forth in the Director Plan and without further shareholder approval. RSUs granted under the Director Plan reduce the number of shares available for grant under the plan by a factor of two times the number of RSUs granted. The Director Plan expires on November 12, 2027. All RSUs granted under the Director Plan are entitled to DERs, which are subject to the same vesting and other terms and conditions as the underlying RSUs. A maximum of approximately 45 million shares (split-adjusted) were authorized for issuance pursuant to Director Plan awards at the time the plan was last amended on November 9, 2021.
Employee Stock Purchase Plan
The Employee Stock Purchase Plan (the “Purchase Plan”) is a shareholder-approved plan under which substantially all employees may voluntarily enroll to purchase the Company’s common stock through payroll deductions at a price equal to 85% of the lower of the fair market values of the stock as of the beginning or the end of six-month offering periods. An employee’s payroll deductions under the Purchase Plan are limited to 10% of the employee’s eligible compensation and employees may not purchase more than $25,000 of stock during any calendar year. A maximum of approximately 230 million shares (split-adjusted) were authorized for issuance under the Purchase Plan at the time the plan was last amended and restated on March 10, 2015.
401(k) Plan
The Company’s 401(k) Plan is a tax-qualified deferred compensation arrangement under Section 401(k) of the Internal Revenue Code. Under the 401(k) Plan, participating U.S. employees may contribute a portion of their eligible earnings, subject to applicable U.S. Internal Revenue Service and plan limits. The Company matches 50% to 100% of each employee’s contributions, depending on length of service, up to a maximum of 6% of the employee’s eligible earnings.
Restricted Stock Units
A summary of the Company’s RSU activity and related information for 2022, 2021 and 2020, is as follows:
Number of
RSUs
(in thousands)
Weighted-Average
Grant Date Fair
Value Per RSU
Aggregate
Fair Value
(in millions)
Balance as of September 28, 2019326,068 $42.30 
RSUs granted
156,800 $59.20 
RSUs vested
(157,743)$40.29 
RSUs canceled
(14,347)$48.07 
Balance as of September 26, 2020310,778 $51.58 
RSUs granted
89,363 $116.33 
RSUs vested
(145,766)$50.71 
RSUs canceled
(13,948)$68.95 
Balance as of September 25, 2021240,427 $75.16 
RSUs granted
91,674 $150.70 
RSUs vested
(115,861)$72.12 
RSUs canceled
(14,739)$99.77 
Balance as of September 24, 2022201,501 $109.48 $30,312 
The fair value as of the respective vesting dates of RSUs was $18.2 billion, $19.0 billion and $10.8 billion for 2022, 2021 and 2020, respectively. The majority of RSUs that vested in 2022, 2021 and 2020 were net share settled such that the Company withheld shares with a value equivalent to the employees’ obligation for the applicable income and other employment taxes, and remitted the cash to the appropriate taxing authorities. The total shares withheld were approximately 41 million, 53 million and 56 million for 2022, 2021 and 2020, respectively, and were based on the value of the RSUs on their respective vesting dates as determined by the Company’s closing stock price. Total payments to taxing authorities for employees’ tax obligations were $6.4 billion, $6.8 billion and $3.9 billion in 2022, 2021 and 2020, respectively.
Apple Inc. | 2022 Form 10-K | 47

Share-Based Compensation
The following table shows share-based compensation expense and the related income tax benefit included in the Consolidated Statements of Operations for 2022, 2021 and 2020 (in millions):
202220212020
Share-based compensation expense$9,038 $7,906 $6,829 
Income tax benefit related to share-based compensation expense
$(4,002)$(4,056)$(2,476)
As of September 24, 2022, the total unrecognized compensation cost related to outstanding RSUs and stock options was $16.7 billion, which the Company expects to recognize over a weighted-average period of 2.6 years.
Note 10 – Commitments and Contingencies
Concentrations in the Available Sources of Supply of Materials and Product
Although most components essential to the Company’s business are generally available from multiple sources, certain components are currently obtained from single or limited sources. The Company also competes for various components with other participants in the markets for smartphones, personal computers, tablets, wearables and accessories. Therefore, many components used by the Company, including those that are available from multiple sources, are at times subject to industry-wide shortage and significant commodity pricing fluctuations.
The Company uses some custom components that are not commonly used by its competitors, and new products introduced by the Company often utilize custom components available from only one source. When a component or product uses new technologies, initial capacity constraints may exist until the suppliers’ yields have matured or their manufacturing capacities have increased. The continued availability of these components at acceptable prices, or at all, may be affected if suppliers decide to concentrate on the production of common components instead of components customized to meet the Company’s requirements.
Substantially all of the Company’s hardware products are manufactured by outsourcing partners that are located primarily in Asia, with some Mac computers manufactured in the U.S. and Ireland.
Unconditional Purchase Obligations
The Company has entered into certain off–balance sheet commitments that require the future purchase of goods or services (“unconditional purchase obligations”). The Company’s unconditional purchase obligations primarily consist of payments for supplier arrangements, internet services and content creation. Future payments under noncancelable unconditional purchase obligations with a remaining term in excess of one year as of September 24, 2022, are as follows (in millions):
2023$13,488 
20244,876 
20251,418 
20266,780 
2027312 
Thereafter412 
Total$27,286 
Contingencies
The Company is subject to various legal proceedings and claims that have arisen in the ordinary course of business and that have not been fully resolved. The outcome of litigation is inherently uncertain. In the opinion of management, there was not at least a reasonable possibility the Company may have incurred a material loss, or a material loss greater than a recorded accrual, concerning loss contingencies for asserted legal and other claims.
Apple Inc. | 2022 Form 10-K | 48

Note 11 – Segment Information and Geographic Data
The following table shows information by reportable segment for 2022, 2021 and 2020 (in millions):
202220212020
Americas:
Net sales
$169,658 $153,306 $124,556 
Operating income
$62,683 $53,382 $37,722 
Europe:
Net sales
$95,118 $89,307 $68,640 
Operating income
$35,233 $32,505 $22,170 
Greater China:
Net sales
$74,200 $68,366 $40,308 
Operating income
$31,153 $28,504 $15,261 
Japan:
Net sales
$25,977 $28,482 $21,418 
Operating income
$12,257 $12,798 $9,279 
Rest of Asia Pacific:
Net sales
$29,375 $26,356 $19,593 
Operating income
$11,569 $9,817 $6,808 
A reconciliation of the Company’s segment operating income to the Consolidated Statements of Operations for 2022, 2021 and 2020 is as follows (in millions):
202220212020
Segment operating income
$152,895 $137,006 $91,240 
Research and development expense
(26,251)(21,914)(18,752)
Other corporate expenses, net
(7,207)(6,143)(6,200)
Total operating income
$119,437 $108,949 $66,288 
The U.S. and China were the only countries that accounted for more than 10% of the Company’s net sales in 2022, 2021 and 2020. Net sales for 2022, 2021 and 2020 and long-lived assets as of September 24, 2022 and September 25, 2021 were as follows (in millions):
202220212020
Net sales:
U.S.$147,859 $133,803 $109,197 
China (1)
74,200 68,366 40,308 
Other countries
172,269 163,648 125,010 
Total net sales
$394,328 $365,817 $274,515 
20222021
Long-lived assets:
U.S.$31,119 $28,203 
China (1)
7,260 7,521 
Other countries
3,738 3,716 
Total long-lived assets
$42,117 $39,440 
(1)China includes Hong Kong and Taiwan. Long-lived assets located in China consist primarily of assets related to product manufacturing, retail stores and related infrastructure.
Apple Inc. | 2022 Form 10-K | 49


Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of Apple Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Apple Inc. as of September 24, 2022 and September 25, 2021, the related consolidated statements of operations, comprehensive income, shareholders’ equity and cash flows for each of the three years in the period ended September 24, 2022, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of Apple Inc. at September 24, 2022 and September 25, 2021, and the results of its operations and its cash flows for each of the three years in the period ended September 24, 2022, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (the “PCAOB”), Apple Inc.’s internal control over financial reporting as of September 24, 2022, based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated October 27, 2022 expressed an unqualified opinion thereon.
Basis for Opinion
These financial statements are the responsibility of Apple Inc.’s management. Our responsibility is to express an opinion on Apple Inc.’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to Apple Inc. in accordance with the U.S. federal securities laws and the applicable rules and regulations of the U.S. Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the account or disclosure to which it relates.
Uncertain Tax Positions
Description of the Matter
As discussed in Note 5 to the financial statements, Apple Inc. is subject to taxation and files income tax returns in the U.S. federal jurisdiction and many state and foreign jurisdictions. As of September 24, 2022, the total amount of gross unrecognized tax benefits was $16.8 billion, of which $8.0 billion, if recognized, would impact Apple Inc.’s effective tax rate. In accounting for uncertain tax positions, Apple Inc. uses significant judgment in the interpretation and application of complex domestic and international tax laws.
Auditing management’s evaluation of whether an uncertain tax position is more likely than not to be sustained and the measurement of the benefit of various tax positions can be complex, involves significant judgment, and is based on interpretations of tax laws and legal rulings.
Apple Inc. | 2022 Form 10-K | 50

How We Addressed the
Matter in Our Audit
We tested controls relating to the evaluation of uncertain tax positions, including controls over management’s assessment as to whether tax positions are more likely than not to be sustained, management’s process to measure the benefit of its tax positions, and the development of the related disclosures.
To evaluate Apple Inc.’s assessment of which tax positions are more likely than not to be sustained, our audit procedures included, among others, reading and evaluating management’s assumptions and analysis, and, as applicable, Apple Inc.’s communications with taxing authorities, that detailed the basis and technical merits of the uncertain tax positions. We involved our tax subject matter resources in assessing the technical merits of certain of Apple Inc.’s tax positions based on our knowledge of relevant tax laws and experience with related taxing authorities. For certain tax positions, we also received external legal counsel confirmation letters and discussed the matters with external advisors and Apple Inc. tax personnel. In addition, we evaluated Apple Inc.’s disclosure in relation to these matters included in Note 5 to the financial statements.
/s/ Ernst & Young LLP
We have served as Apple Inc.’s auditor since 2009.

San Jose, California
October 27, 2022
Apple Inc. | 2022 Form 10-K | 51


Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of Apple Inc.
Opinion on Internal Control Over Financial Reporting
We have audited Apple Inc.’s internal control over financial reporting as of September 24, 2022, based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the “COSO criteria”). In our opinion, Apple Inc. maintained, in all material respects, effective internal control over financial reporting as of September 24, 2022, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (the “PCAOB”), the consolidated balance sheets of Apple Inc. as of September 24, 2022 and September 25, 2021, the related consolidated statements of operations, comprehensive income, shareholders’ equity and cash flows for each of the three years in the period ended September 24, 2022, and the related notes and our report dated October 27, 2022 expressed an unqualified opinion thereon.
Basis for Opinion
Apple Inc.’s management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Annual Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on Apple Inc.’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to Apple Inc. in accordance with the U.S. federal securities laws and the applicable rules and regulations of the U.S. Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.


/s/ Ernst & Young LLP

San Jose, California
October 27, 2022
Apple Inc. | 2022 Form 10-K | 52

YEAR 2021
Item 8. Financial Statements and Supplementary Data
Index to Consolidated Financial StatementsPage
All financial statement schedules have been omitted, since the required information is not applicable or is not present in amounts sufficient to require submission of the schedule, or because the information required is included in the consolidated financial statements and accompanying notes.
Apple Inc. | 2021 Form 10-K | 28

Apple Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In millions, except number of shares which are reflected in thousands and per share amounts)

Years ended
September 25,
2021		September 26,
2020		September 28,
2019
Net sales:
Products$297,392 $220,747 $213,883 
Services68,425 53,768 46,291 
Total net sales365,817 274,515 260,174 
Cost of sales:
Products192,266 151,286 144,996 
Services20,715 18,273 16,786 
Total cost of sales212,981 169,559 161,782 
Gross margin152,836 104,956 98,392 
Operating expenses:
Research and development
21,914 18,752 16,217 
Selling, general and administrative
21,973 19,916 18,245 
Total operating expenses
43,887 38,668 34,462 
Operating income
108,949 66,288 63,930 
Other income/(expense), net
258 803 1,807 
Income before provision for income taxes
109,207 67,091 65,737 
Provision for income taxes
14,527 9,680 10,481 
Net income
$94,680 $57,411 $55,256 
Earnings per share:
Basic
$5.67 $3.31 $2.99 
Diluted
$5.61 $3.28 $2.97 
Shares used in computing earnings per share:
Basic
16,701,272 17,352,119 18,471,336 
Diluted
16,864,919 17,528,214 18,595,651 
See accompanying Notes to Consolidated Financial Statements.
Apple Inc. | 2021 Form 10-K | 29

Apple Inc.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In millions)

Years ended
September 25,
2021		September 26,
2020		September 28,
2019
Net income
$94,680 $57,411 $55,256 
Other comprehensive income/(loss):
Change in foreign currency translation, net of tax
501 88 (408)
Change in unrealized gains/losses on derivative instruments, net of tax:
Change in fair value of derivative instruments32 79 (661)
Adjustment for net (gains)/losses realized and included in net income
1,003 (1,264)23 
Total change in unrealized gains/losses on derivative instruments1,035 (1,185)(638)
Change in unrealized gains/losses on marketable debt securities, net of tax:
Change in fair value of marketable debt securities
(694)1,202 3,802 
Adjustment for net (gains)/losses realized and included in net income
(273)(63)25 
Total change in unrealized gains/losses on marketable debt securities
(967)1,139 3,827 
Total other comprehensive income/(loss)
569 42 2,781 
Total comprehensive income
$95,249 $57,453 $58,037 
See accompanying Notes to Consolidated Financial Statements.
Apple Inc. | 2021 Form 10-K | 30

Apple Inc.
CONSOLIDATED BALANCE SHEETS
(In millions, except number of shares which are reflected in thousands and par value)

September 25,
2021		September 26,
2020
ASSETS:
Current assets:
Cash and cash equivalents
$34,940 $38,016 
Marketable securities
27,699 52,927 
Accounts receivable, net
26,278 16,120 
Inventories
6,580 4,061 
Vendor non-trade receivables
25,228 21,325 
Other current assets
14,111 11,264 
Total current assets
134,836 143,713 
Non-current assets:
Marketable securities
127,877 100,887 
Property, plant and equipment, net
39,440 36,766 
Other non-current assets
48,849 42,522 
Total non-current assets
216,166 180,175 
Total assets
$351,002 $323,888 
LIABILITIES AND SHAREHOLDERS’ EQUITY:
Current liabilities:
Accounts payable
$54,763 $42,296 
Other current liabilities
47,493 42,684 
Deferred revenue
7,612 6,643 
Commercial paper
6,000 4,996 
Term debt
9,613 8,773 
Total current liabilities
125,481 105,392 
Non-current liabilities:
Term debt
109,106 98,667 
Other non-current liabilities
53,325 54,490 
Total non-current liabilities
162,431 153,157 
Total liabilities
287,912 258,549 
Commitments and contingencies
Shareholders’ equity:
Common stock and additional paid-in capital, $0.00001 par value: 50,400,000 shares authorized; 16,426,786 and 16,976,763 shares issued and outstanding, respectively
57,365 50,779 
Retained earnings
5,562 14,966 
Accumulated other comprehensive income/(loss)
163 (406)
Total shareholders’ equity
63,090 65,339 
Total liabilities and shareholders’ equity
$351,002 $323,888 
See accompanying Notes to Consolidated Financial Statements.
Apple Inc. | 2021 Form 10-K | 31

Apple Inc.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(In millions, except per share amounts)

Years ended
September 25,
2021		September 26,
2020		September 28,
2019
Total shareholders’ equity, beginning balances$65,339 $90,488 $107,147 
Common stock and additional paid-in capital:
Beginning balances50,779 45,174 40,201 
Common stock issued
1,105 880 781 
Common stock withheld related to net share settlement of equity awards
(2,627)(2,250)(2,002)
Share-based compensation8,108 6,975 6,194 
Ending balances57,365 50,779 45,174 
Retained earnings:
Beginning balances14,966 45,898 70,400 
Net income94,680 57,411 55,256 
Dividends and dividend equivalents declared(14,431)(14,087)(14,129)
Common stock withheld related to net share settlement of equity awards
(4,151)(1,604)(1,029)
Common stock repurchased(85,502)(72,516)(67,101)
Cumulative effects of changes in accounting principles— (136)2,501 
Ending balances5,562 14,966 45,898 
Accumulated other comprehensive income/(loss):
Beginning balances(406)(584)(3,454)
Other comprehensive income/(loss)569 42 2,781 
Cumulative effects of changes in accounting principles— 136 89 
Ending balances163 (406)(584)
Total shareholders’ equity, ending balances$63,090 $65,339 $90,488 
Dividends and dividend equivalents declared per share or RSU$0.85 $0.795 $0.75 
See accompanying Notes to Consolidated Financial Statements.
Apple Inc. | 2021 Form 10-K | 32

Apple Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
Years ended
September 25,
2021		September 26,
2020		September 28,
2019
Cash, cash equivalents and restricted cash, beginning balances
$39,789 $50,224 $25,913 
Operating activities:
Net income
94,680 57,411 55,256 
Adjustments to reconcile net income to cash generated by operating activities:
Depreciation and amortization
11,284 11,056 12,547 
Share-based compensation expense
7,906 6,829 6,068 
Deferred income tax benefit(4,774)(215)(340)
Other
(147)(97)(652)
Changes in operating assets and liabilities:
Accounts receivable, net
(10,125)6,917 245 
Inventories
(2,642)(127)(289)
Vendor non-trade receivables
(3,903)1,553 2,931 
Other current and non-current assets
(8,042)(9,588)873 
Accounts payable
12,326 (4,062)(1,923)
Deferred revenue
1,676 2,081 (625)
Other current and non-current liabilities
5,799 8,916 (4,700)
Cash generated by operating activities104,038 80,674 69,391 
Investing activities:
Purchases of marketable securities
(109,558)(114,938)(39,630)
Proceeds from maturities of marketable securities
59,023 69,918 40,102 
Proceeds from sales of marketable securities
47,460 50,473 56,988 
Payments for acquisition of property, plant and equipment
(11,085)(7,309)(10,495)
Payments made in connection with business acquisitions, net
(33)(1,524)(624)
Purchases of non-marketable securities
(131)(210)(1,001)
Proceeds from non-marketable securities
387 92 1,634 
Other
(608)(791)(1,078)
Cash generated by/(used in) investing activities(14,545)(4,289)45,896 
Financing activities:
Proceeds from issuance of common stock
1,105 880 781 
Payments for taxes related to net share settlement of equity awards
(6,556)(3,634)(2,817)
Payments for dividends and dividend equivalents
(14,467)(14,081)(14,119)
Repurchases of common stock
(85,971)(72,358)(66,897)
Proceeds from issuance of term debt, net
20,393 16,091 6,963 
Repayments of term debt
(8,750)(12,629)(8,805)
Proceeds from/(Repayments of) commercial paper, net1,022 (963)(5,977)
Other
(129)(126)(105)
Cash used in financing activities
(93,353)(86,820)(90,976)
Increase/(Decrease) in cash, cash equivalents and restricted cash(3,860)(10,435)24,311 
Cash, cash equivalents and restricted cash, ending balances
$35,929 $39,789 $50,224 
Supplemental cash flow disclosure:
Cash paid for income taxes, net
$25,385 $9,501 $15,263 
Cash paid for interest
$2,687 $3,002 $3,423 
See accompanying Notes to Consolidated Financial Statements.
Apple Inc. | 2021 Form 10-K | 33

Apple Inc.
Notes to Consolidated Financial Statements
Note 1 – Summary of Significant Accounting Policies
Basis of Presentation and Preparation
The consolidated financial statements include the accounts of Apple Inc. and its wholly owned subsidiaries (collectively “Apple” or the “Company”). Intercompany accounts and transactions have been eliminated. In the opinion of the Company’s management, the consolidated financial statements reflect all adjustments, which are normal and recurring in nature, necessary for fair financial statement presentation. The preparation of these consolidated financial statements and accompanying notes in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported. Actual results could differ materially from those estimates. Certain prior period amounts in the consolidated financial statements and accompanying notes have been reclassified to conform to the current period’s presentation.
The Company’s fiscal year is the 52- or 53-week period that ends on the last Saturday of September. An additional week is included in the first fiscal quarter every five or six years to realign the Company’s fiscal quarters with calendar quarters. The Company’s fiscal years 2021, 2020 and 2019 spanned 52 weeks each. Unless otherwise stated, references to particular years, quarters, months and periods refer to the Company’s fiscal years ended in September and the associated quarters, months and periods of those fiscal years.
Recently Adopted Accounting Pronouncements
Financial Instruments – Credit Losses
At the beginning of the first quarter of 2021, the Company adopted the Financial Accounting Standards Board’s (the “FASB”) Accounting Standards Update (“ASU”) No. 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”), which modifies the measurement of expected credit losses on certain financial instruments. The Company adopted ASU 2016-13 utilizing the modified retrospective transition method. The adoption of ASU 2016-13 did not have a material impact on the Company’s condensed consolidated financial statements.
Advertising Costs
Advertising costs are expensed as incurred and included in selling, general and administrative expenses.
Share-Based Compensation
The Company generally measures share-based compensation based on the closing price of the Company’s common stock on the date of grant, and recognizes expense on a straight-line basis for its estimate of equity awards that will ultimately vest. Further information regarding share-based compensation can be found in Note 9, “Benefit Plans.”
Earnings Per Share
The following table shows the computation of basic and diluted earnings per share for 2021, 2020 and 2019 (net income in millions and shares in thousands):
202120202019
Numerator:
Net income
$94,680 $57,411 $55,256 
Denominator:
Weighted-average basic shares outstanding
16,701,272 17,352,119 18,471,336 
Effect of dilutive securities
163,647 176,095 124,315 
Weighted-average diluted shares
16,864,919 17,528,214 18,595,651 
Basic earnings per share
$5.67 $3.31 $2.99 
Diluted earnings per share
$5.61 $3.28 $2.97 
Apple Inc. | 2021 Form 10-K | 34

The Company applies the treasury stock method to determine the dilutive effect of potentially dilutive securities. Potentially dilutive securities representing 62 million shares of common stock were excluded from the computation of diluted earnings per share for 2019 because their effect would have been antidilutive.
Cash Equivalents and Marketable Securities
All highly liquid investments with maturities of three months or less at the date of purchase are classified as cash equivalents.
The Company’s investments in marketable debt securities have been classified and accounted for as available-for-sale. The Company classifies its marketable debt securities as either short-term or long-term based on each instrument’s underlying contractual maturity date. Unrealized gains and losses on marketable debt securities classified as available-for-sale are recognized in other comprehensive income/(loss) (“OCI”).
The Company’s investments in marketable equity securities are classified based on the nature of the securities and their availability for use in current operations. The Company’s marketable equity securities are measured at fair value with gains and losses recognized in other income/(expense), net (“OI&E”).
The cost of securities sold is determined using the specific identification method.
Inventories
Inventories are measured using the first-in, first-out method.
Property, Plant and Equipment
Depreciation on property, plant and equipment is recognized on a straight-line basis over the estimated useful lives of the assets, which for buildings is the lesser of 40 years or the remaining life of the building; between one and five years for machinery and equipment, including product tooling and manufacturing process equipment; and the shorter of lease term or useful life for leasehold improvements. Capitalized costs related to internal-use software are amortized on a straight-line basis over the estimated useful lives of the assets, which range from five to seven years. Depreciation and amortization expense on property and equipment was $9.5 billion, $9.7 billion and $11.3 billion during 2021, 2020 and 2019, respectively.
Noncash investing activities involving property, plant and equipment resulted in a net decrease to accounts payable and other current liabilities of $2.9 billion during 2019.
Restricted Cash and Restricted Marketable Securities
The Company considers cash and marketable securities to be restricted when withdrawal or general use is legally restricted. The Company reports restricted cash as other assets in the Consolidated Balance Sheets, and determines current or non-current classification based on the expected duration of the restriction. The Company reports restricted marketable securities as current or non-current marketable securities in the Consolidated Balance Sheets based on the classification of the underlying securities.
Derivative Instruments and Hedging
All derivative instruments are recorded in the Consolidated Balance Sheets at fair value. The accounting treatment for derivative gains and losses is based on intended use and hedge designation.
Gains and losses arising from amounts that are included in the assessment of cash flow hedge effectiveness are initially deferred in accumulated other comprehensive income/(loss) (“AOCI”) and subsequently reclassified into earnings when the hedged transaction affects earnings, and in the same line item in the Consolidated Statements of Operations. For options designated as cash flow hedges, the Company excludes time value from the assessment of hedge effectiveness and recognizes it on a straight-line basis over the life of the hedge in the Consolidated Statements of Operations line item to which the hedge relates. Changes in the fair value of amounts excluded from the assessment of hedge effectiveness are recognized in OCI.
Gains and losses arising from amounts that are included in the assessment of fair value hedge effectiveness are recognized in the Consolidated Statements of Operations line item to which the hedge relates along with offsetting losses and gains related to the change in value of the hedged item. For foreign exchange forward contracts designated as fair value hedges, the Company excludes the forward carry component from the assessment of hedge effectiveness and recognizes it in OI&E on a straight-line basis over the life of the hedge. Changes in the fair value of amounts excluded from the assessment of hedge effectiveness are recognized in OCI.
Gains and losses arising from changes in the fair values of derivative instruments that are not designated as accounting hedges are recognized in the Consolidated Statements of Operations line items to which the derivative instruments relate.
Apple Inc. | 2021 Form 10-K | 35

The Company presents derivative assets and liabilities at their gross fair values in the Consolidated Balance Sheets. The Company classifies cash flows related to derivative instruments as operating activities in the Consolidated Statements of Cash Flows.
Fair Value Measurements
The fair values of the Company’s money market funds and certain marketable equity securities are based on quoted prices in active markets for identical assets. The valuation techniques used to measure the fair value of the Company’s debt instruments and all other financial instruments, which generally have counterparties with high credit ratings, are based on quoted market prices or model-driven valuations using significant inputs derived from or corroborated by observable market data.
Note 2 – Revenue Recognition
Net sales consist of revenue from the sale of iPhone, Mac, iPad, Services and other products. The Company recognizes revenue at the amount to which it expects to be entitled when control of the products or services is transferred to its customers. Control is generally transferred when the Company has a present right to payment and title and the significant risks and rewards of ownership of products or services are transferred to its customers. For most of the Company’s Products net sales, control transfers when products are shipped. For the Company’s Services net sales, control transfers over time as services are delivered. Payment for Products and Services net sales is collected within a short period following transfer of control or commencement of delivery of services, as applicable.
The Company records reductions to Products net sales related to future product returns, price protection and other customer incentive programs based on the Company’s expectations and historical experience.
For arrangements with multiple performance obligations, which represent promises within an arrangement that are distinct, the Company allocates revenue to all distinct performance obligations based on their relative stand-alone selling prices (“SSPs”). When available, the Company uses observable prices to determine SSPs. When observable prices are not available, SSPs are established that reflect the Company’s best estimates of what the selling prices of the performance obligations would be if they were sold regularly on a stand-alone basis. The Company’s process for estimating SSPs without observable prices considers multiple factors that may vary depending upon the unique facts and circumstances related to each performance obligation including, where applicable, prices charged by the Company for similar offerings, market trends in the pricing for similar offerings, product-specific business objectives and the estimated cost to provide the performance obligation.
The Company has identified up to three performance obligations regularly included in arrangements involving the sale of iPhone, Mac, iPad and certain other products. The first performance obligation, which represents the substantial portion of the allocated sales price, is the hardware and bundled software delivered at the time of sale. The second performance obligation is the right to receive certain product-related bundled services, which include iCloud®, Siri and Maps. The third performance obligation is the right to receive, on a when-and-if-available basis, future unspecified software upgrades relating to the software bundled with each device. The Company allocates revenue and any related discounts to these performance obligations based on their relative SSPs. Because the Company lacks observable prices for the undelivered performance obligations, the allocation of revenue is based on the Company’s estimated SSPs. Revenue allocated to the delivered hardware and bundled software is recognized when control has transferred to the customer, which generally occurs when the product is shipped. Revenue allocated to the product-related bundled services and unspecified software upgrade rights is deferred and recognized on a straight-line basis over the estimated period they are expected to be provided. Cost of sales related to delivered hardware and bundled software, including estimated warranty costs, are recognized at the time of sale. Costs incurred to provide product-related bundled services and unspecified software upgrade rights are recognized as cost of sales as incurred.
For certain long-term service arrangements, the Company has performance obligations for services it has not yet delivered. For these arrangements, the Company does not have a right to bill for the undelivered services. The Company has determined that any unbilled consideration relates entirely to the value of the undelivered services. Accordingly, the Company has not recognized revenue, and has elected not to disclose amounts, related to these undelivered services.
For the sale of third-party products where the Company obtains control of the product before transferring it to the customer, the Company recognizes revenue based on the gross amount billed to customers. The Company considers multiple factors when determining whether it obtains control of third-party products including, but not limited to, evaluating if it can establish the price of the product, retains inventory risk for tangible products or has the responsibility for ensuring acceptability of the product. For third-party applications sold through the App Store and certain digital content sold through the Company’s other digital content stores, the Company does not obtain control of the product before transferring it to the customer. Therefore, the Company accounts for such sales on a net basis by recognizing in Services net sales only the commission it retains.
The Company has elected to record revenue net of taxes collected from customers that are remitted to governmental authorities, with the collected taxes recorded within other current liabilities until remitted to the relevant government authority.
Apple Inc. | 2021 Form 10-K | 36

Deferred Revenue
As of September 25, 2021 and September 26, 2020, the Company had total deferred revenue of $11.9 billion and $10.2 billion, respectively. As of September 25, 2021, the Company expects 64% of total deferred revenue to be realized in less than a year, 26% within one-to-two years, 8% within two-to-three years and 2% in greater than three years.
Disaggregated Revenue
Net sales disaggregated by significant products and services for 2021, 2020 and 2019 were as follows (in millions):
202120202019
iPhone (1)
$191,973 $137,781 $142,381 
Mac (1)
35,190 28,622 25,740 
iPad (1)
31,862 23,724 21,280 
Wearables, Home and Accessories (1)(2)
38,367 30,620 24,482 
Services (3)
68,425 53,768 46,291 
Total net sales (4)
$365,817 $274,515 $260,174 
(1)Products net sales include amortization of the deferred value of unspecified software upgrade rights, which are bundled in the sales price of the respective product.
(2)Wearables, Home and Accessories net sales include sales of AirPods, Apple TV, Apple Watch, Beats products, HomePod, iPod touch and accessories.
(3)Services net sales include sales from the Company’s advertising, AppleCare, cloud, digital content, payment and other services. Services net sales also include amortization of the deferred value of services bundled in the sales price of certain products.
(4)Includes $6.7 billion of revenue recognized in 2021 that was included in deferred revenue as of September 26, 2020, $5.0 billion of revenue recognized in 2020 that was included in deferred revenue as of September 28, 2019, and $5.9 billion of revenue recognized in 2019 that was included in deferred revenue as of September 29, 2018.
The Company’s proportion of net sales by disaggregated revenue source was generally consistent for each reportable segment in Note 11, “Segment Information and Geographic Data” for 2021, 2020 and 2019.
Apple Inc. | 2021 Form 10-K | 37

Note 3 – Financial Instruments
Cash, Cash Equivalents and Marketable Securities
The following tables show the Company’s cash, cash equivalents and marketable securities by significant investment category as of September 25, 2021 and September 26, 2020 (in millions):
2021
Adjusted
Cost		Unrealized
Gains		Unrealized
Losses		Fair
Value		Cash and
Cash
Equivalents		Current
Marketable
Securities		Non-Current
Marketable
Securities
Cash
$17,305 $— $— $17,305 $17,305 $— $— 
Level 1 (1):
Money market funds9,608 — — 9,608 9,608 — — 
Mutual funds175 11 (1)185 — 185 — 
Subtotal9,783 11 (1)9,793 9,608 185 — 
Level 2 (2):
Equity securities1,527 — (564)963 — 963 — 
U.S. Treasury securities22,878 102 (77)22,903 3,596 6,625 12,682 
U.S. agency securities8,949 2 (64)8,887 1,775 1,930 5,182 
Non-U.S. government securities20,201 211 (101)20,311 390 3,091 16,830 
Certificates of deposit and time deposits
1,300 — — 1,300 490 810 — 
Commercial paper2,639 — — 2,639 1,776 863 — 
Corporate debt securities83,883 1,242 (267)84,858 — 12,327 72,531 
Municipal securities967 14 — 981 — 130 851 
Mortgage- and asset-backed securities
20,529 171 (124)20,576 — 775 19,801 
Subtotal162,873 1,742 (1,197)163,418 8,027 27,514 127,877 
Total (3)
$189,961 $1,753 $(1,198)$190,516 $34,940 $27,699 $127,877 
2020
Adjusted
Cost		Unrealized
Gains		Unrealized
Losses		Fair
Value		Cash and
Cash
Equivalents		Current
Marketable
Securities		Non-Current
Marketable
Securities
Cash
$17,773 $— $— $17,773 $17,773 $— $— 
Level 1 (1): Money market funds
2,171 — — 2,171 2,171 — — 
Level 2 (2):
U.S. Treasury securities28,439 331 — 28,770 8,580 11,972 8,218 
U.S. agency securities
8,604 8 — 8,612 2,009 3,078 3,525 
Non-U.S. government securities
19,361 275 (186)19,450 255 3,329 15,866 
Certificates of deposit and time deposits
10,399 — — 10,399 4,043 6,246 110 
Commercial paper
11,226 — — 11,226 3,185 8,041 — 
Corporate debt securities
76,937 1,834 (175)78,596 — 19,687 58,909 
Municipal securities
1,001 22 — 1,023 — 139 884 
Mortgage- and asset-backed securities
13,520 314 (24)13,810 — 435 13,375 
Subtotal169,487 2,784 (385)171,886 18,072 52,927 100,887 
Total (3)
$189,431 $2,784 $(385)$191,830 $38,016 $52,927 $100,887 
(1)Level 1 fair value estimates are based on quoted prices in active markets for identical assets or liabilities.
(2)Level 2 fair value estimates are based on observable inputs other than quoted prices in active markets for identical assets and liabilities, quoted prices for identical or similar assets or liabilities in inactive markets, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
(3)As of September 25, 2021 and September 26, 2020, total marketable securities included $17.9 billion and $18.6 billion, respectively, that was restricted from general use, related to the State Aid Decision (refer to Note 5, “Income Taxes”) and other agreements.
Apple Inc. | 2021 Form 10-K | 38

The Company may sell certain of its marketable debt securities prior to their stated maturities for reasons including, but not limited to, managing liquidity, credit risk, duration and asset allocation. The following table shows the fair value of the Company’s non-current marketable debt securities, by contractual maturity, as of September 25, 2021 (in millions):
Due after 1 year through 5 years$83,755 
Due after 5 years through 10 years23,915 
Due after 10 years20,207 
Total fair value$127,877 
The Company typically invests in highly rated securities, with the primary objective of minimizing the potential risk of principal loss. The Company’s investment policy generally requires securities to be investment grade and limits the amount of credit exposure to any one issuer. Fair values were determined for each individual security in the investment portfolio.
Derivative Instruments and Hedging
The Company may use derivative instruments to partially offset its business exposure to foreign exchange and interest rate risk. However, the Company may choose not to hedge certain exposures for a variety of reasons including, but not limited to, accounting considerations or the prohibitive economic cost of hedging particular exposures. There can be no assurance the hedges will offset more than a portion of the financial impact resulting from movements in foreign exchange or interest rates.
Foreign Exchange Risk
To protect gross margins from fluctuations in foreign currency exchange rates, the Company may enter into forward contracts, option contracts or other instruments, and may designate these instruments as cash flow hedges. The Company generally hedges portions of its forecasted foreign currency exposure associated with revenue and inventory purchases, typically for up to 12 months.
To protect the Company’s foreign currency–denominated term debt or marketable securities from fluctuations in foreign currency exchange rates, the Company may enter into forward contracts, cross-currency swaps or other instruments. The Company designates these instruments as either cash flow or fair value hedges. As of September 25, 2021, the Company’s hedged term debt– and marketable securities–related foreign currency transactions are expected to be recognized within 21 years.
The Company may also enter into derivative instruments that are not designated as accounting hedges to protect gross margins from certain fluctuations in foreign currency exchange rates, as well as to offset a portion of the foreign currency exchange gains and losses generated by the remeasurement of certain assets and liabilities denominated in non-functional currencies.
Interest Rate Risk
To protect the Company’s term debt or marketable securities from fluctuations in interest rates, the Company may enter into interest rate swaps, options or other instruments. The Company designates these instruments as either cash flow or fair value hedges.
The notional amounts of the Company’s outstanding derivative instruments as of September 25, 2021 and September 26, 2020 were as follows (in millions):
20212020
Derivative instruments designated as accounting hedges:
Foreign exchange contracts
$76,475 $57,410 
Interest rate contracts
$16,875 $20,700 
Derivative instruments not designated as accounting hedges:
Foreign exchange contracts
$126,918 $88,636 
The gross fair values of the Company’s derivative assets and liabilities were not material as of September 25, 2021 and September 26, 2020.
The gains and losses recognized in OCI and amounts reclassified from AOCI to net income for the Company’s derivative instruments designated as cash flow hedges were not material in 2021, 2020 and 2019.
Apple Inc. | 2021 Form 10-K | 39

The carrying amounts of the Company’s hedged items in fair value hedges as of September 25, 2021 and September 26, 2020 were as follows (in millions):
20212020
Hedged assets/(liabilities):
Current and non-current marketable securities$15,954 $16,270 
Current and non-current term debt$(17,857)$(21,033)
The gains and losses on the Company’s derivative instruments designated as fair value hedges and the related hedged item adjustments were not material in 2021, 2020 and 2019.
Accounts Receivable
Trade Receivables
The Company has considerable trade receivables outstanding with its third-party cellular network carriers, wholesalers, retailers, resellers, small and mid-sized businesses and education, enterprise and government customers. The Company generally does not require collateral from its customers; however, the Company will require collateral or third-party credit support in certain instances to limit credit risk. In addition, when possible, the Company attempts to limit credit risk on trade receivables with credit insurance for certain customers or by requiring third-party financing, loans or leases to support credit exposure. These credit-financing arrangements are directly between the third-party financing company and the end customer. As such, the Company generally does not assume any recourse or credit risk sharing related to any of these arrangements.
As of both September 25, 2021 and September 26, 2020, the Company had no customers that individually represented 10% or more of total trade receivables. The Company’s cellular network carriers accounted for 42% of total trade receivables as of September 25, 2021.
Vendor Non-Trade Receivables
The Company has non-trade receivables from certain of its manufacturing vendors resulting from the sale of components to these vendors who manufacture subassemblies or assemble final products for the Company. The Company purchases these components directly from suppliers. As of September 25, 2021, the Company had three vendors that individually represented 10% or more of total vendor non-trade receivables, which accounted for 52%, 11% and 11%. As of September 26, 2020, the Company had two vendors that individually represented 10% or more of total vendor non-trade receivables, which accounted for 57% and 11%.
Note 4 – Consolidated Financial Statement Details
The following tables show the Company’s consolidated financial statement details as of September 25, 2021 and September 26, 2020 (in millions):
Property, Plant and Equipment, Net
20212020
Land and buildings
$20,041 $17,952 
Machinery, equipment and internal-use software
78,659 75,291 
Leasehold improvements
11,023 10,283 
Gross property, plant and equipment
109,723 103,526 
Accumulated depreciation and amortization
(70,283)(66,760)
Total property, plant and equipment, net
$39,440 $36,766 
Other Non-Current Liabilities
20212020
Long-term taxes payable$24,689 $28,170 
Other non-current liabilities
28,636 26,320 
Total other non-current liabilities
$53,325 $54,490 
Apple Inc. | 2021 Form 10-K | 40

Other Income/(Expense), Net
The following table shows the detail of OI&E for 2021, 2020 and 2019 (in millions):
202120202019
Interest and dividend income
$2,843 $3,763 $4,961 
Interest expense
(2,645)(2,873)(3,576)
Other income/(expense), net60 (87)422 
Total other income/(expense), net
$258 $803 $1,807 
Note 5 – Income Taxes
Provision for Income Taxes and Effective Tax Rate
The provision for income taxes for 2021, 2020 and 2019, consisted of the following (in millions):
202120202019
Federal:
Current
$8,257 $6,306 $6,384 
Deferred
(7,176)(3,619)(2,939)
Total
1,081 2,687 3,445 
State:
Current
1,620 455 475 
Deferred
(338)21 (67)
Total
1,282 476 408 
Foreign:
Current
9,424 3,134 3,962 
Deferred
2,740 3,383 2,666 
Total
12,164 6,517 6,628 
Provision for income taxes
$14,527 $9,680 $10,481 
The foreign provision for income taxes is based on foreign pretax earnings of $68.7 billion, $38.1 billion and $44.3 billion in 2021, 2020 and 2019, respectively.
A reconciliation of the provision for income taxes, with the amount computed by applying the statutory federal income tax rate (21% in 2021, 2020 and 2019) to income before provision for income taxes for 2021, 2020 and 2019, is as follows (dollars in millions):
202120202019
Computed expected tax
$22,933 $14,089 $13,805 
State taxes, net of federal effect
1,151 423 423 
Impacts of the U.S. Tax Cuts and Jobs Act of 2017— (582)— 
Earnings of foreign subsidiaries(4,715)(2,534)(2,625)
Foreign-derived intangible income deduction(1,372)(169)(149)
Research and development credit, net
(1,033)(728)(548)
Excess tax benefits from equity awards
(2,137)(930)(639)
Other
(300)111 214 
Provision for income taxes
$14,527 $9,680 $10,481 
Effective tax rate
13.3 %14.4 %15.9 %
Apple Inc. | 2021 Form 10-K | 41

Deferred Tax Assets and Liabilities
As of September 25, 2021 and September 26, 2020, the significant components of the Company’s deferred tax assets and liabilities were (in millions):
20212020
Deferred tax assets:
Amortization and depreciation
$5,575 $8,317 
Accrued liabilities and other reserves
5,895 4,934 
Lease liabilities2,406 2,038 
Deferred revenue5,399 1,638 
Tax credit carryforwards4,262 797 
Other1,639 1,612 
Total deferred tax assets25,176 19,336 
Less: Valuation allowance(4,903)(1,041)
Total deferred tax assets, net
20,273 18,295 
Deferred tax liabilities:
Minimum tax on foreign earnings
4,318 7,045 
Right-of-use assets2,167 1,862 
Unrealized gains203 526 
Other
512 705 
Total deferred tax liabilities
7,200 10,138 
Net deferred tax assets$13,073 $8,157 
Deferred tax assets and liabilities reflect the effects of tax credits and the future income tax effects of temporary differences between the consolidated financial statement carrying amounts of existing assets and liabilities and their respective tax bases, and are measured using enacted tax rates that apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The Company has elected to record certain deferred tax assets and liabilities in connection with the minimum tax on certain foreign earnings created by the U.S. Tax Cuts and Jobs Act of 2017 (the “Act”).
As of September 25, 2021, the Company had $2.6 billion in foreign tax credit carryforwards in Ireland and $1.6 billion in California research and development credit carryforwards, both of which can be carried forward indefinitely. A valuation allowance has been recorded for the tax credit carryforwards and a portion of other temporary differences.
Uncertain Tax Positions
As of September 25, 2021, the total amount of gross unrecognized tax benefits was $15.5 billion, of which $6.6 billion, if recognized, would impact the Company’s effective tax rate. As of September 26, 2020, the total amount of gross unrecognized tax benefits was $16.5 billion, of which $8.8 billion, if recognized, would have impacted the Company’s effective tax rate.
The aggregate change in the balance of gross unrecognized tax benefits, which excludes interest and penalties, for 2021, 2020 and 2019, is as follows (in millions):
202120202019
Beginning balances
$16,475 $15,619 $9,694 
Increases related to tax positions taken during a prior year
816 454 5,845 
Decreases related to tax positions taken during a prior year
(1,402)(791)(686)
Increases related to tax positions taken during the current year
1,607 1,347 1,697 
Decreases related to settlements with taxing authorities
(1,838)(85)(852)
Decreases related to expiration of the statute of limitations
(181)(69)(79)
Ending balances
$15,477 $16,475 $15,619 
The Company is subject to taxation and files income tax returns in the U.S. federal jurisdiction and many state and foreign jurisdictions. Tax years after 2015 for the U.S. federal jurisdiction, and after 2014 in certain major foreign jurisdictions, remain subject to examination. Although the timing of resolution and/or closure of examinations is not certain, the Company believes it is reasonably possible that its gross unrecognized tax benefits could decrease in the next 12 months by as much as $1.2 billion.
Apple Inc. | 2021 Form 10-K | 42

Interest and Penalties
The Company includes interest and penalties related to income tax matters within the provision for income taxes. As of September 25, 2021 and September 26, 2020, the total amount of gross interest and penalties accrued was $1.5 billion and $1.4 billion, respectively. The Company recognized interest and penalty expense of $219 million, $85 million and $73 million in 2021, 2020 and 2019, respectively.
European Commission State Aid Decision
On August 30, 2016, the European Commission announced its decision that Ireland granted state aid to the Company by providing tax opinions in 1991 and 2007 concerning the tax allocation of profits of the Irish branches of two subsidiaries of the Company (the “State Aid Decision”). The State Aid Decision ordered Ireland to calculate and recover additional taxes from the Company for the period June 2003 through December 2014. Irish legislative changes, effective as of January 2015, eliminated the application of the tax opinions from that date forward. The recovery amount was calculated to be €13.1 billion, plus interest of €1.2 billion. The Company and Ireland appealed the State Aid Decision to the General Court of the Court of Justice of the European Union (the “General Court”). On July 15, 2020, the General Court annulled the State Aid Decision. On September 25, 2020, the European Commission appealed the General Court’s decision to the European Court of Justice. The Company believes that any incremental Irish corporate income taxes potentially due related to the State Aid Decision would be creditable against U.S. taxes, subject to any foreign tax credit limitations in the Act.
On an annual basis, the Company may request approval from the Irish Minister for Finance to reduce the recovery amount for certain taxes paid to other countries. As of September 25, 2021, the adjusted recovery amount was €12.7 billion, excluding interest. The adjusted recovery amount plus interest is funded into escrow, where it will remain restricted from general use pending the conclusion of all legal proceedings. Refer to the Cash, Cash Equivalents and Marketable Securities section of Note 3, “Financial Instruments” for more information.
Note 6 – Leases
The Company has lease arrangements for certain equipment and facilities, including retail, corporate, manufacturing and data center space. These leases typically have original terms not exceeding 10 years and generally contain multiyear renewal options, some of which are reasonably certain of exercise. The Company’s lease arrangements may contain both lease and nonlease components. The Company has elected to combine and account for lease and nonlease components as a single lease component for leases of retail, corporate, and data center facilities.
Payments under the Company’s lease arrangements may be fixed or variable, and variable lease payments are primarily based on purchases of output of the underlying leased assets. Lease costs associated with fixed payments on the Company’s operating leases were $1.7 billion and $1.5 billion for 2021 and 2020, respectively. Lease costs associated with variable payments on the Company’s leases were $12.9 billion and $9.3 billion for 2021 and 2020, respectively. Rent expense for operating leases, as previously reported under former lease accounting standards, was $1.3 billion in 2019.
The Company made $1.4 billion and $1.5 billion of fixed cash payments related to operating leases in 2021 and 2020, respectively. Noncash activities involving right-of-use (“ROU”) assets obtained in exchange for lease liabilities were $3.3 billion for 2021 and $10.5 billion for 2020, including the impact of adopting FASB ASU No. 2016-02, Leases (Topic 842) in the first quarter of 2020.
The following table shows ROU assets and lease liabilities, and the associated financial statement line items, as of September 25, 2021 and September 26, 2020 (in millions):
Lease-Related Assets and LiabilitiesFinancial Statement Line Items20212020
Right-of-use assets:
Operating leasesOther non-current assets$10,087 $8,570 
Finance leasesProperty, plant and equipment, net861 629 
Total right-of-use assets$10,948 $9,199 
Lease liabilities:
Operating leasesOther current liabilities$1,449 $1,436 
Other non-current liabilities9,506 7,745 
Finance leasesOther current liabilities79 24 
Other non-current liabilities769 637 
Total lease liabilities$11,803 $9,842 
Apple Inc. | 2021 Form 10-K | 43

Lease liability maturities as of September 25, 2021, are as follows (in millions):
Operating
Leases		Finance
Leases		Total
2022$1,629 $104 $1,733 
20231,560 123 1,683 
20241,499 99 1,598 
20251,251 46 1,297 
20261,061 26 1,087 
Thereafter5,187 868 6,055 
Total undiscounted liabilities12,187 1,266 13,453 
Less: Imputed interest(1,232)(418)(1,650)
Total lease liabilities$10,955 $848 $11,803 
The weighted-average remaining lease term related to the Company’s lease liabilities as of September 25, 2021 and September 26, 2020 was 10.8 years and 10.3 years, respectively.
The discount rate related to the Company’s lease liabilities as of both September 25, 2021 and September 26, 2020 was 2.0%. The discount rates are generally based on estimates of the Company’s incremental borrowing rate, as the discount rates implicit in the Company’s leases cannot be readily determined.
As of September 25, 2021, the Company had $1.1 billion of future payments under additional leases, primarily for corporate facilities and retail space, that had not yet commenced. These leases will commence between 2022 and 2023, with lease terms ranging from 3 years to 20 years.
Note 7 – Debt
Commercial Paper and Repurchase Agreements
The Company issues unsecured short-term promissory notes (“Commercial Paper”) pursuant to a commercial paper program. The Company uses net proceeds from the commercial paper program for general corporate purposes, including dividends and share repurchases. As of September 25, 2021 and September 26, 2020, the Company had $6.0 billion and $5.0 billion of Commercial Paper outstanding, respectively, with maturities generally less than nine months. The weighted-average interest rate of the Company’s Commercial Paper was 0.06% and 0.62% as of September 25, 2021 and September 26, 2020, respectively. The following table provides a summary of cash flows associated with the issuance and maturities of Commercial Paper for 2021, 2020 and 2019 (in millions):
202120202019
Maturities 90 days or less:
Proceeds from/(Repayments of) commercial paper, net$(357)$100 $(3,248)
Maturities greater than 90 days:
Proceeds from commercial paper
7,946 6,185 13,874 
Repayments of commercial paper
(6,567)(7,248)(16,603)
Proceeds from/(Repayments of) commercial paper, net1,379 (1,063)(2,729)
Total proceeds from/(repayments of) commercial paper, net$1,022 $(963)$(5,977)
In 2020, the Company entered into agreements to sell certain of its marketable securities with a promise to repurchase the securities at a specified time and amount (“Repos”). Due to the Company’s continuing involvement with the marketable securities, the Company accounted for its Repos as collateralized borrowings. The Company entered into $5.2 billion of Repos during 2020, all of which had been settled as of September 26, 2020.
Apple Inc. | 2021 Form 10-K | 44

Term Debt
As of September 25, 2021, the Company had outstanding floating- and fixed-rate notes with varying maturities for an aggregate principal amount of $118.1 billion (collectively the “Notes”). The Notes are senior unsecured obligations and interest is payable in arrears. The following table provides a summary of the Company’s term debt as of September 25, 2021 and September 26, 2020:
Maturities
(calendar year)
20212020
Amount
(in millions)
Effective
Interest Rate
Amount
(in millions)
Effective
Interest Rate
2013 – 2020 debt issuances:
Floating-rate notes
 2022
$1,750 
0.48% – 0.63%
$2,250 
0.60% – 1.39%
Fixed-rate 0.000% – 4.650% notes
2022 – 2060
95,813 
0.03% – 4.78%
103,828 
0.03% – 4.78%
Second quarter 2021 debt issuance:
Fixed-rate 0.700% – 2.800% notes
2026 – 2061
14,000 
0.75% – 2.81%
— — %
Fourth quarter 2021 debt issuance:
Fixed-rate 1.400% – 2.850% notes
2028 – 2061
6,500 
1.43% – 2.86%
— — %
Total term debt118,063 106,078 
Unamortized premium/(discount) and issuance costs, net
(380)(314)
Hedge accounting fair value adjustments1,036 1,676 
Less: Current portion of term debt(9,613)(8,773)
Total non-current portion of term debt$109,106 $98,667 
To manage interest rate risk on certain of its U.S. dollar–denominated fixed- or floating-rate notes, the Company has entered into interest rate swaps to effectively convert the fixed interest rates to floating interest rates or the floating interest rates to fixed interest rates on a portion of these notes. Additionally, to manage foreign currency risk on certain of its foreign currency–denominated notes, the Company has entered into foreign currency swaps to effectively convert these notes to U.S. dollar–denominated notes.
The effective interest rates for the Notes include the interest on the Notes, amortization of the discount or premium and, if applicable, adjustments related to hedging. The Company recognized $2.6 billion, $2.8 billion and $3.2 billion of interest expense on its term debt for 2021, 2020 and 2019, respectively.
The future principal payments for the Company’s Notes as of September 25, 2021, are as follows (in millions):
2022$9,583 
202311,391 
202410,202 
202510,914 
202611,408 
Thereafter64,565 
Total term debt$118,063 
As of September 25, 2021 and September 26, 2020, the fair value of the Company’s Notes, based on Level 2 inputs, was $125.3 billion and $117.1 billion, respectively.
Apple Inc. | 2021 Form 10-K | 45

Note 8 – Shareholders’ Equity
Share Repurchase Program
As of September 25, 2021, the Company was authorized to purchase up to $315 billion of the Company’s common stock under a share repurchase program (the “Program”). During 2021, the Company repurchased 656 million shares of its common stock for $85.5 billion, including 36 million shares delivered under a $5.0 billion accelerated share repurchase agreement entered into in May 2021, bringing the total utilization under the Program to $254.1 billion as of September 25, 2021. The Program does not obligate the Company to acquire any specific number of shares. Under the Program, shares may be repurchased in privately negotiated and/or open market transactions, including under plans complying with Rule 10b5-1 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”).
Shares of Common Stock
The following table shows the changes in shares of common stock for 2021, 2020 and 2019 (in thousands):
202120202019
Common stock outstanding, beginning balances
16,976,763 17,772,945 19,019,943 
Common stock repurchased
(656,340)(917,270)(1,380,819)
Common stock issued, net of shares withheld for employee taxes
106,363 121,088 133,821 
Common stock outstanding, ending balances
16,426,786 16,976,763 17,772,945 
Note 9 – Benefit Plans
2014 Employee Stock Plan
The 2014 Employee Stock Plan (the “2014 Plan”) is a shareholder-approved plan that provides for broad-based equity grants to employees, including executive officers, and permits the granting of restricted stock units (“RSUs”), stock grants, performance-based awards, stock options and stock appreciation rights, as well as cash bonus awards. RSUs granted under the 2014 Plan generally vest over four years, based on continued employment, and are settled upon vesting in shares of the Company’s common stock on a one-for-one basis. RSUs granted under the 2014 Plan reduce the number of shares available for grant under the plan by a factor of two times the number of RSUs granted. RSUs canceled and shares withheld to satisfy tax withholding obligations increase the number of shares available for grant under the 2014 Plan utilizing a factor of two times the number of RSUs canceled or shares withheld. All RSUs granted under the 2014 Plan have dividend equivalent rights (“DERs”), which entitle holders of RSUs to the same dividend value per share as holders of common stock. DERs are subject to the same vesting and other terms and conditions as the underlying RSUs. As of September 25, 2021, approximately 760 million shares were reserved for future issuance under the 2014 Plan. Shares subject to outstanding awards under the 2003 Employee Stock Plan that expire, are canceled or otherwise terminate, or are withheld to satisfy tax withholding obligations for RSUs, will also be available for awards under the 2014 Plan.
Apple Inc. Non-Employee Director Stock Plan
The Apple Inc. Non-Employee Director Stock Plan (the “Director Plan”) is a shareholder-approved plan that (i) permits the Company to grant awards of RSUs or stock options to the Company’s non-employee directors, (ii) provides for automatic initial grants of RSUs upon a non-employee director joining the Board of Directors and automatic annual grants of RSUs at each annual meeting of shareholders, and (iii) permits the Board of Directors to prospectively change the value and relative mixture of stock options and RSUs for the initial and annual award grants and the methodology for determining the number of shares of the Company’s common stock subject to these grants, in each case within the limits set forth in the Director Plan and without further shareholder approval. RSUs granted under the Director Plan reduce the number of shares available for grant under the plan by a factor of two times the number of RSUs granted. The Director Plan expires on November 12, 2027. All RSUs granted under the Director Plan are entitled to DERs, which are subject to the same vesting and other terms and conditions as the underlying RSUs. As of September 25, 2021, approximately 4 million shares were reserved for future issuance under the Director Plan.
Rule 10b5-1 Trading Plans
During the three months ended September 25, 2021, Section 16 officers Katherine L. Adams, Timothy D. Cook, Luca Maestri, Deirdre O’Brien and Jeffrey Williams had equity trading plans in place in accordance with Rule 10b5-1(c)(1) under the Exchange Act. An equity trading plan is a written document that preestablishes the amounts, prices and dates (or formula for determining the amounts, prices and dates) of future purchases or sales of the Company’s stock, including shares acquired under the Company’s employee and director equity plans.
Apple Inc. | 2021 Form 10-K | 46

Employee Stock Purchase Plan
The Employee Stock Purchase Plan (the “Purchase Plan”) is a shareholder-approved plan under which substantially all employees may voluntarily enroll to purchase the Company’s common stock through payroll deductions at a price equal to 85% of the lower of the fair market values of the stock as of the beginning or the end of six-month offering periods. An employee’s payroll deductions under the Purchase Plan are limited to 10% of the employee’s compensation and employees may not purchase more than $25,000 of stock during any calendar year. As of September 25, 2021, approximately 96 million shares were reserved for future issuance under the Purchase Plan.
401(k) Plan
The Company’s 401(k) Plan is a deferred salary arrangement under Section 401(k) of the Internal Revenue Code. Under the 401(k) Plan, participating U.S. employees may defer a portion of their pretax earnings, up to the U.S. Internal Revenue Service annual contribution limit ($19,500 for calendar year 2021). The Company matches 50% to 100% of each employee’s contributions, depending on length of service, up to a maximum of 6% of the employee’s eligible earnings.
Restricted Stock Units
A summary of the Company’s RSU activity and related information for 2021, 2020 and 2019, is as follows:
Number of
RSUs
(in thousands)
Weighted-Average
Grant Date Fair
Value Per RSU
Aggregate
Fair Value
(in millions)
Balance as of September 29, 2018368,618 $33.65 
RSUs granted
147,409 $53.99 
RSUs vested
(168,350)$33.80 
RSUs canceled
(21,609)$40.71 
Balance as of September 28, 2019326,068 $42.30 
RSUs granted
156,800 $59.20 
RSUs vested
(157,743)$40.29 
RSUs canceled
(14,347)$48.07 
Balance as of September 26, 2020310,778 $51.58 
RSUs granted
89,363 $116.33 
RSUs vested
(145,766)$50.71 
RSUs canceled
(13,948)$68.95 
Balance as of September 25, 2021240,427 $75.16 $35,324 
The fair value as of the respective vesting dates of RSUs was $19.0 billion, $10.8 billion and $8.6 billion for 2021, 2020 and 2019, respectively. The majority of RSUs that vested in 2021, 2020 and 2019 were net share settled such that the Company withheld shares with a value equivalent to the employees’ obligation for the applicable income and other employment taxes, and remitted the cash to the appropriate taxing authorities. The total shares withheld were approximately 53 million, 56 million and 59 million for 2021, 2020 and 2019, respectively, and were based on the value of the RSUs on their respective vesting dates as determined by the Company’s closing stock price. Total payments for the employees’ tax obligations to taxing authorities were $6.8 billion, $3.9 billion and $3.0 billion in 2021, 2020 and 2019, respectively.
Share-Based Compensation
The following table shows share-based compensation expense and the related income tax benefit included in the Consolidated Statements of Operations for 2021, 2020 and 2019 (in millions):
202120202019
Share-based compensation expense$7,906 $6,829 $6,068 
Income tax benefit related to share-based compensation expense
$(4,056)$(2,476)$(1,967)
As of September 25, 2021, the total unrecognized compensation cost related to outstanding RSUs and stock options was $13.6 billion, which the Company expects to recognize over a weighted-average period of 2.5 years.
Apple Inc. | 2021 Form 10-K | 47

Note 10 – Commitments and Contingencies
Accrued Warranty and Guarantees
The following table shows changes in the Company’s accrued warranties and related costs for 2021, 2020 and 2019 (in millions):
202120202019
Beginning accrued warranty and related costs
$3,354 $3,570 $3,692 
Cost of warranty claims
(2,674)(2,956)(3,857)
Accruals for product warranty
2,684 2,740 3,735 
Ending accrued warranty and related costs
$3,364 $3,354 $3,570 
The Company offers an iPhone Upgrade Program, which is available to customers who purchase a qualifying iPhone in the U.S., the U.K. and China mainland. The iPhone Upgrade Program provides customers the right to trade in that iPhone for a specified amount when purchasing a new iPhone, provided certain conditions are met. The Company accounts for the trade-in right as a guarantee liability and recognizes arrangement revenue net of the fair value of such right, with subsequent changes to the guarantee liability recognized within net sales.
Concentrations in the Available Sources of Supply of Materials and Product
Although most components essential to the Company’s business are generally available from multiple sources, certain components are currently obtained from single or limited sources. The Company also competes for various components with other participants in the markets for smartphones, personal computers, tablets, wearables and accessories. Therefore, many components used by the Company, including those that are available from multiple sources, are at times subject to industry-wide shortage and significant commodity pricing fluctuations.
The Company uses some custom components that are not commonly used by its competitors, and new products introduced by the Company often utilize custom components available from only one source. When a component or product uses new technologies, initial capacity constraints may exist until the suppliers’ yields have matured or their manufacturing capacities have increased. The continued availability of these components at acceptable prices, or at all, may be affected if suppliers decide to concentrate on the production of common components instead of components customized to meet the Company’s requirements.
The Company has entered into agreements for the supply of many components; however, there can be no guarantee that the Company will be able to extend or renew these agreements on similar terms, or at all.
Substantially all of the Company’s hardware products are manufactured by outsourcing partners that are located primarily in Asia, with some Mac computers manufactured in the U.S. and Ireland.
Unconditional Purchase Obligations
The Company has entered into certain off–balance sheet commitments that require the future purchase of goods or services (“unconditional purchase obligations”). The Company’s unconditional purchase obligations primarily consist of payments for content creation, Internet and telecommunications services and supplier arrangements. Future payments under noncancelable unconditional purchase obligations having a remaining term in excess of one year as of September 25, 2021, are as follows (in millions):
2022$4,551 
20232,165 
2024984 
2025405 
202651 
Thereafter28 
Total$8,184 
Apple Inc. | 2021 Form 10-K | 48

Contingencies
The Company is subject to various legal proceedings and claims that have arisen in the ordinary course of business and that have not been fully resolved. The outcome of litigation is inherently uncertain. When a loss related to a legal proceeding or claim is probable and reasonably estimable, the Company accrues its best estimate for the ultimate resolution of the matter. If one or more legal matters were resolved against the Company in a reporting period for amounts above management’s expectations, the Company’s financial condition and operating results for that reporting period could be materially adversely affected. In the opinion of management, there was not at least a reasonable possibility the Company may have incurred a material loss, or a material loss greater than a recorded accrual, concerning loss contingencies for asserted legal and other claims, except for the following matters:
VirnetX
VirnetX, Inc. (“VirnetX”) filed a lawsuit against the Company alleging that certain of the Company’s products infringe on patents owned by VirnetX. On April 11, 2018, a jury returned a verdict against the Company in the U.S. District Court for the Eastern District of Texas (the “Eastern Texas District Court”). The Company appealed the verdict to the U.S. Court of Appeals for the Federal Circuit, which remanded the case back to the Eastern Texas District Court, where a retrial was held in October 2020. The jury returned a verdict against the Company and awarded damages of $503 million, which the Company has appealed. The Company has challenged the validity of the patents at issue in the retrial at the U.S. Patent and Trademark Office (the “PTO”), and the PTO has declared the patents invalid, subject to further appeal by VirnetX.
iOS Performance Management Cases
On April 5, 2018, several U.S. federal actions alleging violation of consumer protection laws, fraud, computer intrusion and other causes of action related to the Company’s performance management feature used in its iPhone operating systems, introduced to certain iPhones in iOS updates 10.2.1 and 11.2, were consolidated through a Multidistrict Litigation process into a single action in the U.S. District Court for the Northern District of California (the “Northern California District Court”). On February 28, 2020, the parties in the Multidistrict Litigation reached a settlement to resolve the U.S. federal and California state class actions. On March 18, 2021, the Northern California District Court granted final approval of the Multidistrict Litigation settlement, which will result in an aggregate payment of $310 million to settle all claims. The Company continues to believe that its iPhones were not defective, that the performance management feature introduced with iOS updates 10.2.1 and 11.2 was intended to, and did, improve customers’ user experience, and that the Company did not make any misleading statements or fail to disclose any material information.
French Competition Authority
On March 16, 2020, the French Competition Authority (“FCA”) announced its decision that aspects of the Company’s sales and distribution practices in France violate French competition law, and issued a fine of €1.1 billion. The Company strongly disagrees with the FCA’s decision, and has appealed.
Optis
Optis Wireless Technology, LLC and related entities (“Optis”) filed a lawsuit in the U.S. District Court for the Eastern District of Texas against the Company alleging that certain of the Company’s products infringe on patents owned by Optis. On August 11, 2020, a jury returned a verdict against the Company and awarded damages. In post-trial proceedings, the damages portion of the verdict was set aside. A retrial on damages was held in August 2021 and the jury in that proceeding awarded damages of $300 million against the Company, which the Company plans to appeal.
Note 11 – Segment Information and Geographic Data
The Company reports segment information based on the “management” approach. The management approach designates the internal reporting used by management for making decisions and assessing performance as the source of the Company’s reportable segments.
The Company manages its business primarily on a geographic basis. The Company’s reportable segments consist of the Americas, Europe, Greater China, Japan and Rest of Asia Pacific. Americas includes both North and South America. Europe includes European countries, as well as India, the Middle East and Africa. Greater China includes China mainland, Hong Kong and Taiwan. Rest of Asia Pacific includes Australia and those Asian countries not included in the Company’s other reportable segments. Although the reportable segments provide similar hardware and software products and similar services, each one is managed separately to better align with the location of the Company’s customers and distribution partners and the unique market dynamics of each geographic region. The accounting policies of the various segments are the same as those described in Note 1, “Summary of Significant Accounting Policies.”
Apple Inc. | 2021 Form 10-K | 49

The Company evaluates the performance of its reportable segments based on net sales and operating income. Net sales for geographic segments are generally based on the location of customers and sales through the Company’s retail stores located in those geographic locations. Operating income for each segment includes net sales to third parties, related cost of sales and operating expenses directly attributable to the segment. Advertising expenses are generally included in the geographic segment in which the expenditures are incurred. Operating income for each segment excludes other income and expense and certain expenses managed outside the reportable segments. Costs excluded from segment operating income include various corporate expenses such as research and development, corporate marketing expenses, certain share-based compensation expenses, income taxes, various nonrecurring charges and other separately managed general and administrative costs. The Company does not include intercompany transfers between segments for management reporting purposes.
The following table shows information by reportable segment for 2021, 2020 and 2019 (in millions):
202120202019
Americas:
Net sales
$153,306 $124,556 $116,914 
Operating income
$53,382 $37,722 $35,099 
Europe:
Net sales
$89,307 $68,640 $60,288 
Operating income
$32,505 $22,170 $19,195 
Greater China:
Net sales
$68,366 $40,308 $43,678 
Operating income
$28,504 $15,261 $16,232 
Japan:
Net sales
$28,482 $21,418 $21,506 
Operating income
$12,798 $9,279 $9,369 
Rest of Asia Pacific:
Net sales
$26,356 $19,593 $17,788 
Operating income
$9,817 $6,808 $6,055 
A reconciliation of the Company’s segment operating income to the Consolidated Statements of Operations for 2021, 2020 and 2019 is as follows (in millions):
202120202019
Segment operating income
$137,006 $91,240 $85,950 
Research and development expense
(21,914)(18,752)(16,217)
Other corporate expenses, net
(6,143)(6,200)(5,803)
Total operating income
$108,949 $66,288 $63,930 
Apple Inc. | 2021 Form 10-K | 50

The U.S. and China were the only countries that accounted for more than 10% of the Company’s net sales in 2021, 2020 and 2019. There was no single customer that accounted for more than 10% of net sales in 2021, 2020 and 2019. Net sales for 2021, 2020 and 2019 and long-lived assets as of September 25, 2021 and September 26, 2020 were as follows (in millions):
202120202019
Net sales:
U.S.$133,803 $109,197 $102,266 
China (1)
68,366 40,308 43,678 
Other countries
163,648 125,010 114,230 
Total net sales
$365,817 $274,515 $260,174 
20212020
Long-lived assets:
U.S.$28,203 $25,890 
China (1)
7,521 7,256 
Other countries
3,716 3,620 
Total long-lived assets
$39,440 $36,766 
(1)China includes Hong Kong and Taiwan. Long-lived assets located in China consist primarily of product tooling and manufacturing process equipment and assets related to retail stores and related infrastructure.
Apple Inc. | 2021 Form 10-K | 51


Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of Apple Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Apple Inc. as of September 25, 2021 and September 26, 2020, the related consolidated statements of operations, comprehensive income, shareholders’ equity and cash flows for each of the three years in the period ended September 25, 2021, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of Apple Inc. at September 25, 2021 and September 26, 2020, and the results of its operations and its cash flows for each of the three years in the period ended September 25, 2021, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (the “PCAOB”), Apple Inc.’s internal control over financial reporting as of September 25, 2021, based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated October 28, 2021 expressed an unqualified opinion thereon.
Basis for Opinion
These financial statements are the responsibility of Apple Inc.’s management. Our responsibility is to express an opinion on Apple Inc.’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to Apple Inc. in accordance with the U.S. federal securities laws and the applicable rules and regulations of the U.S. Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the account or disclosure to which it relates.
Uncertain Tax Positions
Description of the Matter
As discussed in Note 5 to the financial statements, Apple Inc. is subject to taxation and files income tax returns in the U.S. federal jurisdiction and many state and foreign jurisdictions. As of September 25, 2021, the total amount of gross unrecognized tax benefits was $15.5 billion, of which $6.6 billion, if recognized, would impact Apple Inc.’s effective tax rate. Apple Inc. uses significant judgment in the calculation of tax liabilities in estimating the impact of uncertainties in the application of technical merits and complex tax laws.
Auditing management’s evaluation of whether an uncertain tax position is more likely than not to be sustained and the measurement of the benefit of various tax positions can be complex, involves significant judgment, and is based on interpretations of tax laws and legal rulings.
Apple Inc. | 2021 Form 10-K | 52

How We Addressed the
Matter in Our Audit
We tested controls relating to the evaluation of uncertain tax positions, including controls over management’s assessment as to whether tax positions are more likely than not to be sustained, management’s process to measure the benefit of its tax positions, and the development of the related disclosures.
To evaluate Apple Inc.’s assessment of which tax positions are more likely than not to be sustained, our audit procedures included, among others, reading and evaluating management’s assumptions and analysis, and, as applicable, Apple Inc.’s communications with taxing authorities, that detailed the basis and technical merits of the uncertain tax positions. We involved our tax subject matter resources in assessing the technical merits of certain of Apple Inc.’s tax positions based on our knowledge of relevant tax laws and experience with related taxing authorities. For certain tax positions, we also received external legal counsel confirmation letters and discussed the matters with external advisors and Apple Inc. tax personnel. In addition, we evaluated Apple Inc.’s disclosure in relation to these matters included in Note 5 to the financial statements.
/s/ Ernst & Young LLP
We have served as Apple Inc.’s auditor since 2009.

San Jose, California
October 28, 2021
Apple Inc. | 2021 Form 10-K | 53


Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of Apple Inc.
Opinion on Internal Control Over Financial Reporting
We have audited Apple Inc.’s internal control over financial reporting as of September 25, 2021, based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the “COSO criteria”). In our opinion, Apple Inc. maintained, in all material respects, effective internal control over financial reporting as of September 25, 2021, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (the “PCAOB”), the consolidated balance sheets of Apple Inc. as of September 25, 2021 and September 26, 2020, the related consolidated statements of operations, comprehensive income, shareholders’ equity and cash flows for each of the three years in the period ended September 25, 2021, and the related notes and our report dated October 28, 2021 expressed an unqualified opinion thereon.
Basis for Opinion
Apple Inc.’s management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Annual Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on Apple Inc.’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to Apple Inc. in accordance with the U.S. federal securities laws and the applicable rules and regulations of the U.S. Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.


/s/ Ernst & Young LLP

San Jose, California
October 28, 2021
Apple Inc. | 2021 Form 10-K | 54

YEAR 2020
Item 8. Financial Statements and Supplementary Data
Index to Consolidated Financial StatementsPage
All financial statement schedules have been omitted, since the required information is not applicable or is not present in amounts sufficient to require submission of the schedule, or because the information required is included in the consolidated financial statements and accompanying notes.
Apple Inc. | 2020 Form 10-K | 30

Apple Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In millions, except number of shares which are reflected in thousands and per share amounts)

Years ended
September 26,
2020		September 28,
2019		September 29,
2018
Net sales:
Products$220,747 $213,883 $225,847 
Services53,768 46,291 39,748 
Total net sales274,515 260,174 265,595 
Cost of sales:
Products151,286 144,996 148,164 
Services18,273 16,786 15,592 
Total cost of sales169,559 161,782 163,756 
Gross margin104,956 98,392 101,839 
Operating expenses:
Research and development
18,752 16,217 14,236 
Selling, general and administrative
19,916 18,245 16,705 
Total operating expenses
38,668 34,462 30,941 
Operating income
66,288 63,930 70,898 
Other income/(expense), net
803 1,807 2,005 
Income before provision for income taxes
67,091 65,737 72,903 
Provision for income taxes
9,680 10,481 13,372 
Net income
$57,411 $55,256 $59,531 
Earnings per share:
Basic
$3.31 $2.99 $3.00 
Diluted
$3.28 $2.97 $2.98 
Shares used in computing earnings per share:
Basic
17,352,119 18,471,336 19,821,510 
Diluted
17,528,214 18,595,651 20,000,435 
See accompanying Notes to Consolidated Financial Statements.
Apple Inc. | 2020 Form 10-K | 31

Apple Inc.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In millions)

Years ended
September 26,
2020		September 28,
2019		September 29,
2018
Net income
$57,411 $55,256 $59,531 
Other comprehensive income/(loss):
Change in foreign currency translation, net of tax
88 (408)(525)
Change in unrealized gains/losses on derivative instruments, net of tax:
Change in fair value of derivatives
79 (661)523 
Adjustment for net (gains)/losses realized and included in net income
(1,264)23 382 
Total change in unrealized gains/losses on derivative instruments
(1,185)(638)905 
Change in unrealized gains/losses on marketable debt securities, net of tax:
Change in fair value of marketable debt securities
1,202 3,802 (3,407)
Adjustment for net (gains)/losses realized and included in net income
(63)25 1 
Total change in unrealized gains/losses on marketable debt securities
1,139 3,827 (3,406)
Total other comprehensive income/(loss)
42 2,781 (3,026)
Total comprehensive income
$57,453 $58,037 $56,505 
See accompanying Notes to Consolidated Financial Statements.
Apple Inc. | 2020 Form 10-K | 32

Apple Inc.
CONSOLIDATED BALANCE SHEETS
(In millions, except number of shares which are reflected in thousands and par value)

September 26,
2020		September 28,
2019
ASSETS:
Current assets:
Cash and cash equivalents
$38,016 $48,844 
Marketable securities
52,927 51,713 
Accounts receivable, net
16,120 22,926 
Inventories
4,061 4,106 
Vendor non-trade receivables
21,325 22,878 
Other current assets
11,264 12,352 
Total current assets
143,713 162,819 
Non-current assets:
Marketable securities
100,887 105,341 
Property, plant and equipment, net
36,766 37,378 
Other non-current assets
42,522 32,978 
Total non-current assets
180,175 175,697 
Total assets
$323,888 $338,516 
LIABILITIES AND SHAREHOLDERS’ EQUITY:
Current liabilities:
Accounts payable
$42,296 $46,236 
Other current liabilities
42,684 37,720 
Deferred revenue
6,643 5,522 
Commercial paper
4,996 5,980 
Term debt
8,773 10,260 
Total current liabilities
105,392 105,718 
Non-current liabilities:
Term debt
98,667 91,807 
Other non-current liabilities
54,490 50,503 
Total non-current liabilities
153,157 142,310 
Total liabilities
258,549 248,028 
Commitments and contingencies
Shareholders’ equity:
Common stock and additional paid-in capital, $0.00001 par value: 50,400,000 shares authorized; 16,976,763 and 17,772,945 shares issued and outstanding, respectively
50,779 45,174 
Retained earnings
14,966 45,898 
Accumulated other comprehensive income/(loss)
(406)(584)
Total shareholders’ equity
65,339 90,488 
Total liabilities and shareholders’ equity
$323,888 $338,516 
See accompanying Notes to Consolidated Financial Statements.
Apple Inc. | 2020 Form 10-K | 33

Apple Inc.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(In millions, except per share amounts)

Years ended
September 26,
2020		September 28,
2019		September 29,
2018
Total shareholders’ equity, beginning balances$90,488 $107,147 $134,047 
Common stock and additional paid-in capital:
Beginning balances45,174 40,201 35,867 
Common stock issued
880 781 669 
Common stock withheld related to net share settlement of equity awards
(2,250)(2,002)(1,778)
Share-based compensation6,975 6,194 5,443 
Ending balances50,779 45,174 40,201 
Retained earnings:
Beginning balances45,898 70,400 98,330 
Net income57,411 55,256 59,531 
Dividends and dividend equivalents declared(14,087)(14,129)(13,735)
Common stock withheld related to net share settlement of equity awards
(1,604)(1,029)(948)
Common stock repurchased(72,516)(67,101)(73,056)
Cumulative effects of changes in accounting principles(136)2,501 278 
Ending balances14,966 45,898 70,400 
Accumulated other comprehensive income/(loss):
Beginning balances(584)(3,454)(150)
Other comprehensive income/(loss)42 2,781 (3,026)
Cumulative effects of changes in accounting principles136 89 (278)
Ending balances(406)(584)(3,454)
Total shareholders’ equity, ending balances$65,339 $90,488 $107,147 
Dividends and dividend equivalents declared per share or RSU$0.795 $0.75 $0.68 
See accompanying Notes to Consolidated Financial Statements.
Apple Inc. | 2020 Form 10-K | 34

Apple Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
Years ended
September 26,
2020		September 28,
2019		September 29,
2018
Cash, cash equivalents and restricted cash, beginning balances
$50,224 $25,913 $20,289 
Operating activities:
Net income
57,411 55,256 59,531 
Adjustments to reconcile net income to cash generated by operating activities:
Depreciation and amortization
11,056 12,547 10,903 
Share-based compensation expense
6,829 6,068 5,340 
Deferred income tax benefit(215)(340)(32,590)
Other
(97)(652)(444)
Changes in operating assets and liabilities:
Accounts receivable, net
6,917 245 (5,322)
Inventories
(127)(289)828 
Vendor non-trade receivables
1,553 2,931 (8,010)
Other current and non-current assets
(9,588)873 (423)
Accounts payable
(4,062)(1,923)9,175 
Deferred revenue
2,081 (625)(3)
Other current and non-current liabilities
8,916 (4,700)38,449 
Cash generated by operating activities80,674 69,391 77,434 
Investing activities:
Purchases of marketable securities
(114,938)(39,630)(71,356)
Proceeds from maturities of marketable securities
69,918 40,102 55,881 
Proceeds from sales of marketable securities
50,473 56,988 47,838 
Payments for acquisition of property, plant and equipment
(7,309)(10,495)(13,313)
Payments made in connection with business acquisitions, net
(1,524)(624)(721)
Purchases of non-marketable securities
(210)(1,001)(1,871)
Proceeds from non-marketable securities
92 1,634 353 
Other
(791)(1,078)(745)
Cash generated by/(used in) investing activities(4,289)45,896 16,066 
Financing activities:
Proceeds from issuance of common stock
880 781 669 
Payments for taxes related to net share settlement of equity awards
(3,634)(2,817)(2,527)
Payments for dividends and dividend equivalents
(14,081)(14,119)(13,712)
Repurchases of common stock
(72,358)(66,897)(72,738)
Proceeds from issuance of term debt, net
16,091 6,963 6,969 
Repayments of term debt
(12,629)(8,805)(6,500)
Repayments of commercial paper, net(963)(5,977)(37)
Other
(126)(105)— 
Cash used in financing activities
(86,820)(90,976)(87,876)
Increase/(Decrease) in cash, cash equivalents and restricted cash(10,435)24,311 5,624 
Cash, cash equivalents and restricted cash, ending balances
$39,789 $50,224 $25,913 
Supplemental cash flow disclosure:
Cash paid for income taxes, net
$9,501 $15,263 $10,417 
Cash paid for interest
$3,002 $3,423 $3,022 
See accompanying Notes to Consolidated Financial Statements.
Apple Inc. | 2020 Form 10-K | 35

Apple Inc.
Notes to Consolidated Financial Statements
Note 1 – Summary of Significant Accounting Policies
Basis of Presentation and Preparation
The consolidated financial statements include the accounts of Apple Inc. and its wholly owned subsidiaries (collectively “Apple” or the “Company”). Intercompany accounts and transactions have been eliminated. In the opinion of the Company’s management, the consolidated financial statements reflect all adjustments, which are normal and recurring in nature, necessary for fair financial statement presentation. The preparation of these consolidated financial statements and accompanying notes in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported. Actual results could differ materially from those estimates. Certain prior period amounts in the consolidated financial statements and accompanying notes have been reclassified to conform to the current period’s presentation.
The Company’s fiscal year is the 52- or 53-week period that ends on the last Saturday of September. The Company’s fiscal years 2020, 2019 and 2018 spanned 52 weeks each. An additional week is included in the first fiscal quarter every five or six years to realign the Company’s fiscal quarters with calendar quarters. Unless otherwise stated, references to particular years, quarters, months and periods refer to the Company’s fiscal years ended in September and the associated quarters, months and periods of those fiscal years.
Common Stock Split
On August 28, 2020, the Company effected a four-for-one stock split to shareholders of record as of August 24, 2020. All share, restricted stock unit (“RSU”) and per share or per RSU information has been retroactively adjusted to reflect the stock split.
Recently Adopted Accounting Pronouncements
Leases
At the beginning of the first quarter of 2020, the Company adopted the Financial Accounting Standards Board’s (the “FASB”) Accounting Standards Update (“ASU”) No. 2016-02, Leases (Topic 842) (“ASU 2016-02”), and additional ASUs issued to clarify and update the guidance in ASU 2016-02 (collectively, the “new leases standard”), which modifies lease accounting for lessees to increase transparency and comparability by recording lease assets and liabilities for operating leases and disclosing key information about leasing arrangements. The Company adopted the new leases standard utilizing the modified retrospective transition method, under which amounts in prior periods presented were not restated. For contracts existing at the time of adoption, the Company elected to not reassess (i) whether any are or contain leases, (ii) lease classification, and (iii) initial direct costs. Upon adoption, the Company recorded $7.5 billion of right-of-use (“ROU”) assets and $8.1 billion of lease liabilities on its Condensed Consolidated Balance Sheet.
Hedging
At the beginning of the first quarter of 2020, the Company adopted FASB ASU No. 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities (“ASU 2017-12”). ASU 2017-12 expands component and fair value hedging, specifies the presentation of the effects of hedging instruments, eliminates the separate measurement and presentation of hedge ineffectiveness, and updates disclosure requirements related to hedging. The Company adopted ASU 2017-12 utilizing the modified retrospective transition method. Upon adoption, the Company recorded a $136 million increase in accumulated other comprehensive income/(loss) (“AOCI”) and a corresponding decrease in retained earnings in the Condensed Consolidated Statement of Shareholders’ Equity.
Advertising Costs
Advertising costs are expensed as incurred and included in selling, general and administrative expenses.
Share-Based Compensation
The Company generally measures share-based compensation based on the closing price of the Company’s common stock on the date of grant, and recognizes expense on a straight-line basis for its estimate of equity awards that will ultimately vest. Further information regarding share-based compensation can be found in Note 9, “Benefit Plans.”
Apple Inc. | 2020 Form 10-K | 36

Earnings Per Share
The following table shows the computation of basic and diluted earnings per share for 2020, 2019 and 2018 (net income in millions and shares in thousands):
202020192018
Numerator:
Net income
$57,411 $55,256 $59,531 
Denominator:
Weighted-average basic shares outstanding
17,352,119 18,471,336 19,821,510 
Effect of dilutive securities
176,095 124,315 178,925 
Weighted-average diluted shares
17,528,214 18,595,651 20,000,435 
Basic earnings per share
$3.31 $2.99 $3.00 
Diluted earnings per share
$3.28 $2.97 $2.98 
The Company applies the treasury stock method to determine the dilutive effect of potentially dilutive securities. Potentially dilutive securities representing 62 million shares of common stock were excluded from the computation of diluted earnings per share for 2019 because their effect would have been antidilutive.
Cash Equivalents and Marketable Securities
All highly liquid investments with maturities of three months or less at the date of purchase are classified as cash equivalents.
The Company’s investments in marketable debt securities have been classified and accounted for as available-for-sale. The Company classifies its marketable debt securities as either short-term or long-term based on each instrument’s underlying contractual maturity date. Unrealized gains and losses on marketable debt securities classified as available-for-sale are recognized in other comprehensive income/(loss) (“OCI”).
The Company’s investments in marketable equity securities are classified based on the nature of the securities and their availability for use in current operations. The Company’s marketable equity securities are measured at fair value with gains and losses recognized in other income/(expense), net (“OI&E”).
The cost of securities sold is determined using the specific identification method.
Inventories
Inventories are measured using the first-in, first-out method.
Property, Plant and Equipment
Depreciation on property, plant and equipment is recognized on a straight-line basis over the estimated useful lives of the assets, which for buildings is the lesser of 40 years or the remaining life of the building; between one and five years for machinery and equipment, including product tooling and manufacturing process equipment; and the shorter of lease term or useful life for leasehold improvements. Capitalized costs related to internal-use software are amortized on a straight-line basis over the estimated useful lives of the assets, which range from three to seven years. Depreciation and amortization expense on property and equipment was $9.7 billion, $11.3 billion and $9.3 billion during 2020, 2019 and 2018, respectively.
Non-cash investing activities involving property, plant and equipment resulted in a net increase/(decrease) to accounts payable and other current liabilities of $(2.9) billion and $3.4 billion during 2019 and 2018, respectively.
Apple Inc. | 2020 Form 10-K | 37

Non-Marketable Securities
The Company has elected to apply the measurement alternative to equity securities without readily determinable fair values. As such, the Company’s non-marketable equity securities are measured at cost, less any impairment, and are adjusted for changes in fair value resulting from observable transactions for identical or similar investments of the same issuer. Gains and losses on non-marketable equity securities are recognized in OI&E.
Restricted Cash and Restricted Marketable Securities
The Company considers cash and marketable securities to be restricted when withdrawal or general use is legally restricted. The Company reports restricted cash as other assets in the Consolidated Balance Sheets, and determines current or non-current classification based on the expected duration of the restriction. The Company reports restricted marketable securities as current or non-current marketable securities in the Consolidated Balance Sheets based on the classification of the underlying securities.
Fair Value Measurements
The fair values of the Company’s money market funds and certain marketable equity securities are based on quoted prices in active markets for identical assets. The valuation techniques used to measure the fair value of the Company’s debt instruments and all other financial instruments, which generally have counterparties with high credit ratings, are based on quoted market prices or model-driven valuations using significant inputs derived from or corroborated by observable market data.
Note 2 – Revenue Recognition
Net sales consist of revenue from the sale of iPhone, Mac, iPad, Services and other products. The Company recognizes revenue at the amount to which it expects to be entitled when control of the products or services is transferred to its customers. Control is generally transferred when the Company has a present right to payment and title and the significant risks and rewards of ownership of products or services are transferred to its customers. For most of the Company’s Products net sales, control transfers when products are shipped. For the Company’s Services net sales, control transfers over time as services are delivered. Payment for Products and Services net sales is collected within a short period following transfer of control or commencement of delivery of services, as applicable.
The Company records reductions to Products net sales related to future product returns, price protection and other customer incentive programs based on the Company’s expectations and historical experience.
For arrangements with multiple performance obligations, which represent promises within an arrangement that are distinct, the Company allocates revenue to all distinct performance obligations based on their relative stand-alone selling prices (“SSPs”). When available, the Company uses observable prices to determine SSPs. When observable prices are not available, SSPs are established that reflect the Company’s best estimates of what the selling prices of the performance obligations would be if they were sold regularly on a stand-alone basis. The Company’s process for estimating SSPs without observable prices considers multiple factors that may vary depending upon the unique facts and circumstances related to each performance obligation including, where applicable, prices charged by the Company for similar offerings, market trends in the pricing for similar offerings, product-specific business objectives and the estimated cost to provide the performance obligation.
The Company has identified up to three performance obligations regularly included in arrangements involving the sale of iPhone, Mac, iPad and certain other products. The first performance obligation, which represents the substantial portion of the allocated sales price, is the hardware and bundled software delivered at the time of sale. The second performance obligation is the right to receive certain product-related bundled services, which include iCloud, Siri and Maps. The third performance obligation is the right to receive, on a when-and-if-available basis, future unspecified software upgrades relating to the software bundled with each device. The Company allocates revenue and any related discounts to these performance obligations based on their relative SSPs. Because the Company lacks observable prices for the undelivered performance obligations, the allocation of revenue is based on the Company’s estimated SSPs. Revenue allocated to the delivered hardware and bundled software is recognized when control has transferred to the customer, which generally occurs when the product is shipped. Revenue allocated to the product-related bundled services and unspecified software upgrade rights is deferred and recognized on a straight-line basis over the estimated period they are expected to be provided. Cost of sales related to delivered hardware and bundled software, including estimated warranty costs, are recognized at the time of sale. Costs incurred to provide product-related bundled services and unspecified software upgrade rights are recognized as cost of sales as incurred.
For certain long-term service arrangements, the Company has performance obligations for services it has not yet delivered. For these arrangements, the Company does not have a right to bill for the undelivered services. The Company has determined that any unbilled consideration relates entirely to the value of the undelivered services. Accordingly, the Company has not recognized revenue, and has elected not to disclose amounts, related to these undelivered services.
Apple Inc. | 2020 Form 10-K | 38

For the sale of third-party products where the Company obtains control of the product before transferring it to the customer, the Company recognizes revenue based on the gross amount billed to customers. The Company considers multiple factors when determining whether it obtains control of third-party products including, but not limited to, evaluating if it can establish the price of the product, retains inventory risk for tangible products or has the responsibility for ensuring acceptability of the product. For third-party applications sold through the App Store and certain digital content sold through the Company’s other digital content stores, the Company does not obtain control of the product before transferring it to the customer. Therefore, the Company accounts for such sales on a net basis by recognizing in Services net sales only the commission it retains.
The Company has elected to record revenue net of taxes collected from customers that are remitted to governmental authorities, with the collected taxes recorded within other current liabilities until remitted to the relevant government authority.
Deferred Revenue
As of September 26, 2020 and September 28, 2019, the Company had total deferred revenue of $10.2 billion and $8.1 billion, respectively. As of September 26, 2020, the Company expects 65% of total deferred revenue to be realized in less than a year, 25% within one-to-two years, 8% within two-to-three years and 2% in greater than three years.
Disaggregated Revenue
Net sales disaggregated by significant products and services for 2020, 2019 and 2018 were as follows (in millions):
202020192018
iPhone (1)
$137,781 $142,381 $164,888 
Mac (1)
28,622 25,740 25,198 
iPad (1)
23,724 21,280 18,380 
Wearables, Home and Accessories (1)(2)
30,620 24,482 17,381 
Services (3)
53,768 46,291 39,748 
Total net sales (4)
$274,515 $260,174 $265,595 
(1)Products net sales include amortization of the deferred value of unspecified software upgrade rights, which are bundled in the sales price of the respective product.
(2)Wearables, Home and Accessories net sales include sales of AirPods, Apple TV, Apple Watch, Beats products, HomePod, iPod touch and Apple-branded and third-party accessories.
(3)Services net sales include sales from the Company’s advertising, AppleCare, digital content and other services. Services net sales also include amortization of the deferred value of Maps, Siri, and free iCloud storage and Apple TV+ services, which are bundled in the sales price of certain products.
(4)Includes $5.0 billion of revenue recognized in 2020 that was included in deferred revenue as of September 28, 2019, $5.9 billion of revenue recognized in 2019 that was included in deferred revenue as of September 29, 2018, and $5.8 billion of revenue recognized in 2018 that was included in deferred revenue as of September 30, 2017.
The Company’s proportion of net sales by disaggregated revenue source was generally consistent for each reportable segment in Note 11, “Segment Information and Geographic Data” for 2020, 2019 and 2018.
Apple Inc. | 2020 Form 10-K | 39

Note 3 – Financial Instruments
Cash, Cash Equivalents and Marketable Securities
The following tables show the Company’s cash and marketable securities by significant investment category as of September 26, 2020 and September 28, 2019 (in millions):
2020
Adjusted
Cost		Unrealized
Gains		Unrealized
Losses		Fair
Value		Cash and
Cash
Equivalents		Current
Marketable
Securities		Non-Current
Marketable
Securities
Cash
$17,773 $— $— $17,773 $17,773 $— $— 
Level 1 (1):
Money market funds
2,171 — — 2,171 2,171 — — 
Subtotal
2,171 — — 2,171 2,171 — — 
Level 2 (2):
U.S. Treasury securities
28,439 331 — 28,770 8,580 11,972 8,218 
U.S. agency securities
8,604 8 — 8,612 2,009 3,078 3,525 
Non-U.S. government securities
19,361 275 (186)19,450 255 3,329 15,866 
Certificates of deposit and time deposits
10,399 — — 10,399 4,043 6,246 110 
Commercial paper
11,226 — — 11,226 3,185 8,041 — 
Corporate debt securities
76,937 1,834 (175)78,596 — 19,687 58,909 
Municipal securities
1,001 22 — 1,023 — 139 884 
Mortgage- and asset-backed securities
13,520 314 (24)13,810 — 435 13,375 
Subtotal
169,487 2,784 (385)171,886 18,072 52,927 100,887 
Total (3)
$189,431 $2,784 $(385)$191,830 $38,016 $52,927 $100,887 
2019
Adjusted
Cost		Unrealized
Gains		Unrealized
Losses		Fair
Value		Cash and
Cash
Equivalents		Current
Marketable
Securities		Non-Current
Marketable
Securities
Cash
$12,204 $— $— $12,204 $12,204 $— $— 
Level 1 (1):
Money market funds
15,897 — — 15,897 15,897 — — 
Subtotal
15,897 — — 15,897 15,897 — — 
Level 2 (2):
U.S. Treasury securities
30,293 33 (62)30,264 6,165 9,817 14,282 
U.S. agency securities
9,767 1 (3)9,765 6,489 2,249 1,027 
Non-U.S. government securities
19,821 337 (50)20,108 749 3,168 16,191 
Certificates of deposit and time deposits
4,041 — — 4,041 2,024 1,922 95 
Commercial paper
12,433 — — 12,433 5,193 7,240 — 
Corporate debt securities
85,383 756 (92)86,047 123 26,127 59,797 
Municipal securities
958 8 (1)965 — 68 897 
Mortgage- and asset-backed securities
14,180 67 (73)14,174 — 1,122 13,052 
Subtotal
176,876 1,202 (281)177,797 20,743 51,713 105,341 
Total (3)
$204,977 $1,202 $(281)$205,898 $48,844 $51,713 $105,341 
(1)Level 1 fair value estimates are based on quoted prices in active markets for identical assets or liabilities.
(2)Level 2 fair value estimates are based on observable inputs other than quoted prices in active markets for identical assets and liabilities, quoted prices for identical or similar assets or liabilities in inactive markets, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
(3)As of September 26, 2020 and September 28, 2019, total marketable securities included $18.6 billion and $18.9 billion, respectively, that was restricted from general use, related to the State Aid Decision (refer to Note 5, “Income Taxes”) and other agreements.
Apple Inc. | 2020 Form 10-K | 40

The Company may sell certain of its marketable debt securities prior to their stated maturities for reasons including, but not limited to, managing liquidity, credit risk, duration and asset allocation. The maturities of the Company’s non-current marketable debt securities generally range from one to five years.
The Company typically invests in highly rated securities, with the primary objective of minimizing the potential risk of principal loss. The Company’s investment policy generally requires securities to be investment grade and limits the amount of credit exposure to any one issuer. Fair values were determined for each individual security in the investment portfolio. When evaluating a marketable debt security for other-than-temporary impairment, the Company reviews factors such as the duration and extent to which the fair value of the security is less than its cost, the financial condition of the issuer and any changes thereto, and the Company’s intent to sell, or whether it will more likely than not be required to sell, the security before recovery of its amortized cost basis. As of September 26, 2020, the Company does not consider any of its marketable debt securities to be other-than-temporarily impaired.
Non-Marketable Securities
The Company holds non-marketable equity securities of certain privately held companies without readily determinable fair values. As of September 26, 2020 and September 28, 2019, the Company’s non-marketable equity securities had a carrying value of $2.8 billion and $2.9 billion, respectively.
Restricted Cash
A reconciliation of the Company’s cash and cash equivalents in the Consolidated Balance Sheets to cash, cash equivalents and restricted cash in the Consolidated Statements of Cash Flows as of September 26, 2020 and September 28, 2019 is as follows (in millions):
20202019
Cash and cash equivalents$38,016 $48,844 
Restricted cash included in other current assets36 23 
Restricted cash included in other non-current assets1,737 1,357 
Cash, cash equivalents and restricted cash$39,789 $50,224 
The Company’s restricted cash primarily consisted of cash to support the Company’s iPhone Upgrade Program.
Derivative Financial Instruments
The Company may use derivatives to partially offset its business exposure to foreign currency and interest rate risk on expected future cash flows, net investments in certain foreign subsidiaries, and certain existing assets and liabilities. However, the Company may choose not to hedge certain exposures for a variety of reasons including, but not limited to, accounting considerations or the prohibitive economic cost of hedging particular exposures. There can be no assurance the hedges will offset more than a portion of the financial impact resulting from movements in foreign currency exchange or interest rates.
To protect gross margins from fluctuations in foreign currency exchange rates, certain of the Company’s subsidiaries whose functional currency is the U.S. dollar may hedge a portion of forecasted foreign currency revenue, and subsidiaries whose functional currency is not the U.S. dollar may hedge a portion of forecasted inventory purchases not denominated in the subsidiaries’ functional currencies. The Company may enter into forward contracts, option contracts or other instruments to manage this risk and may designate these instruments as cash flow hedges. The Company generally hedges portions of its forecasted foreign currency exposure associated with revenue and inventory purchases, typically for up to 12 months.
To protect the net investment in a foreign operation from fluctuations in foreign currency exchange rates, the Company may enter into foreign currency forward and option contracts to offset a portion of the changes in the carrying amounts of these investments due to fluctuations in foreign currency exchange rates. In addition, the Company may use non-derivative financial instruments, such as its foreign currency–denominated debt, as hedges of its net investments in certain foreign subsidiaries. In both of these cases, the Company designates these instruments as net investment hedges.
To protect the Company’s foreign currency–denominated term debt or marketable securities from fluctuations in foreign currency exchange rates, the Company may enter into forward contracts, cross-currency swaps or other instruments. These instruments may offset a portion of the foreign currency remeasurement gains or losses, or changes in fair value. The Company may designate these instruments as either cash flow or fair value hedges. As of September 26, 2020, the Company’s hedged term debt– and marketable securities–related foreign currency transactions are expected to be recognized within 22 years.
The Company may also enter into non-designated foreign currency contracts to offset a portion of the foreign currency exchange gains and losses generated by the remeasurement of certain assets and liabilities denominated in non-functional currencies.
Apple Inc. | 2020 Form 10-K | 41

To protect the Company’s foreign currency–denominated term debt or marketable securities from fluctuations in interest rates, the Company may enter into interest rate swaps, options or other instruments. These instruments may offset a portion of the changes in interest income or expense, or changes in fair value. The Company designates these instruments as either cash flow or fair value hedges. As of September 26, 2020, the Company’s hedged interest rate transactions are expected to be recognized within seven years.
Cash Flow Hedges
Cash flow hedge amounts that are included in the assessment of hedge effectiveness are deferred in AOCI until the hedged item is recognized in earnings. Deferred gains and losses associated with cash flow hedges of foreign currency revenue are recognized as a component of net sales in the same period as the related revenue is recognized, and deferred gains and losses related to cash flow hedges of inventory purchases are recognized as a component of cost of sales in the same period as the related costs are recognized. Deferred gains and losses associated with cash flow hedges of interest income or expense are recognized in OI&E in the same period as the related income or expense is recognized. For options designated as cash flow hedges, the time value is excluded from the assessment of hedge effectiveness and recognized in the financial statement line item to which the hedge relates on a straight-line basis over the life of the hedge. Changes in the fair value of amounts excluded from the assessment of hedge effectiveness are recognized in OCI.
Derivative instruments designated as cash flow hedges must be de-designated as hedges when it is probable the forecasted hedged transaction will not occur in the initially identified time period or within a subsequent two-month time period. Deferred gains and losses in AOCI associated with such derivative instruments are reclassified into OI&E in the period of de-designation. Any subsequent changes in fair value of such derivative instruments are reflected in OI&E unless they are re-designated as hedges of other transactions.
Net Investment Hedges
Net investment hedge amounts that are included in the assessment of hedge effectiveness are recorded in OCI as a part of the cumulative translation adjustment. For foreign exchange forward contracts designated as net investment hedges, the forward carry component is excluded from the assessment of hedge effectiveness and recognized in OCI on a straight-line basis over the life of the hedge. Changes in the fair value of amounts excluded from the assessment of hedge effectiveness are recognized in OCI.
Fair Value Hedges
Fair value hedge gains and losses related to amounts that are included in the assessment of hedge effectiveness are recognized in earnings along with a corresponding loss or gain related to the change in value of the hedged item in the same line in the Consolidated Statements of Operations. For foreign exchange forward contracts designated as fair value hedges, the forward carry component is excluded from the assessment of hedge effectiveness and recognized in OI&E on a straight-line basis over the life of the hedge. Amounts excluded from the effectiveness assessment of fair value hedges and recognized in OI&E were gains of $465 million and $777 million for 2020 and 2019, respectively. Changes in the fair value of amounts excluded from the assessment of hedge effectiveness are recognized in OCI.
Non-Designated Derivatives
Derivatives that are not designated as hedging instruments are adjusted to fair value through earnings in the financial statement line item to which the derivative relates.
The Company records all derivatives in the Consolidated Balance Sheets at fair value. The Company’s accounting treatment for these derivative instruments is based on its hedge designation. The following tables show the Company’s derivative instruments at gross fair value as of September 26, 2020 and September 28, 2019 (in millions):
2020
Fair Value of
Derivatives Designated
as Hedge Instruments		Fair Value of
Derivatives Not Designated
as Hedge Instruments		Total
Fair Value
Derivative assets (1):
Foreign exchange contracts
$749 $303 $1,052 
Interest rate contracts
$1,557 $— $1,557 
Derivative liabilities (2):
Foreign exchange contracts
$1,561 $485 $2,046 
Apple Inc. | 2020 Form 10-K | 42

2019
Fair Value of
Derivatives Designated
as Hedge Instruments		Fair Value of
Derivatives Not Designated
as Hedge Instruments		Total
Fair Value
Derivative assets (1):
Foreign exchange contracts
$1,798 $323 $2,121 
Interest rate contracts
$685 $— $685 
Derivative liabilities (2):
Foreign exchange contracts
$1,341 $160 $1,501 
Interest rate contracts
$105 $— $105 
(1)The fair value of derivative assets is measured using Level 2 fair value inputs and is included in other current assets and other non-current assets in the Consolidated Balance Sheets.
(2)The fair value of derivative liabilities is measured using Level 2 fair value inputs and is included in other current liabilities and other non-current liabilities in the Consolidated Balance Sheets.
The Company classifies cash flows related to derivative financial instruments as operating activities in its Consolidated Statements of Cash Flows.
The following table shows the pre-tax gains and losses of the Company’s derivative and non-derivative instruments designated as cash flow and fair value hedges in OCI and the Consolidated Statements of Operations for 2020, 2019 and 2018 (in millions):
202020192018
Gains/(Losses) recognized in OCI – included in effectiveness assessment:
Cash flow hedges:
Foreign exchange contracts
$365 $(959)$682 
Interest rate contracts
(57)— 1 
Total
$308 $(959)$683 
Net investment hedges:
Foreign currency debt
$15 $(58)$4 
Gains/(Losses) reclassified from AOCI into net income – included in effectiveness assessment:
Cash flow hedges:
Foreign exchange contracts
$1,553 $(116)$(482)
Interest rate contracts
(8)(7)1 
Total
$1,545 $(123)$(481)
The amount excluded from the effectiveness assessment of the Company’s hedges and recognized in OCI was a loss of $168 million for 2020.
Apple Inc. | 2020 Form 10-K | 43

The following tables show information about the Company’s derivative instruments designated as fair value hedges and the related hedged items for 2020, 2019 and 2018 and as of September 26, 2020 (in millions):
202020192018
Gains/(Losses) on derivative instruments (1):
Foreign exchange contracts$(992)$1,020 $(168)
Interest rate contracts1,114 2,068 (1,363)
Total$122 $3,088 $(1,531)
Gains/(Losses) related to hedged items (1):
Marketable securities$991 $(1,018)$167 
Fixed-rate debt(1,114)(2,068)1,363 
Total$(123)$(3,086)$1,530 
2020
Carrying amounts of hedged assets/(liabilities):
Marketable securities (2)
$16,270 
Fixed-rate debt (3)
$(21,033)
Cumulative hedging adjustments included in the carrying amounts of hedged items:
Marketable securities carrying amount increases/(decreases)$493 
Fixed-rate debt carrying amount (increases)/decreases$(1,541)
(1)Gains and losses related to fair value hedges are included in OI&E in the Consolidated Statements of Operations.
(2)The carrying amounts of marketable securities that are designated as hedged items in fair value hedges are included in current marketable securities and non-current marketable securities in the Consolidated Balance Sheet.
(3)The carrying amounts of fixed-rate debt instruments that are designated as hedged items in fair value hedges are included in current term debt and non-current term debt in the Consolidated Balance Sheet.
The following table shows the notional amounts of the Company’s outstanding derivative instruments and credit risk amounts associated with outstanding or unsettled derivative instruments as of September 26, 2020 and September 28, 2019 (in millions):
20202019
Notional
Amount		Credit Risk
Amount		Notional
Amount		Credit Risk
Amount
Instruments designated as accounting hedges:
Foreign exchange contracts
$57,410 $749 $61,795 $1,798 
Interest rate contracts
$20,700 $1,557 $31,250 $685 
Instruments not designated as accounting hedges:
Foreign exchange contracts
$88,636 $303 $76,868 $323 
The notional amounts for outstanding derivative instruments provide one measure of the transaction volume outstanding and do not represent the amount of the Company’s exposure to credit or market loss. The credit risk amounts represent the Company’s gross exposure to potential accounting loss on derivative instruments that are outstanding or unsettled if all counterparties failed to perform according to the terms of the contract, based on then-current currency or interest rates at each respective date. The Company’s exposure to credit loss and market risk will vary over time as currency and interest rates change. Although the table above reflects the notional and credit risk amounts of the Company’s derivative instruments, it does not reflect the gains or losses associated with the exposures and transactions that the instruments are intended to hedge. The amounts ultimately realized upon settlement of these financial instruments, together with the gains and losses on the underlying exposures, will depend on actual market conditions during the remaining life of the instruments.
Apple Inc. | 2020 Form 10-K | 44

The Company generally enters into master netting arrangements, which are designed to reduce credit risk by permitting net settlement of transactions with the same counterparty. To further limit credit risk, the Company generally enters into collateral security arrangements that provide for collateral to be received or posted when the net fair value of certain financial instruments fluctuates from contractually established thresholds. The Company presents its derivative assets and derivative liabilities at their gross fair values in its Consolidated Balance Sheets. As of September 26, 2020 and September 28, 2019, the net cash collateral received by the Company related to derivative instruments under its collateral security arrangements was $875 million and $1.6 billion, respectively. The Company includes gross collateral posted and received in other current assets and other current liabilities in the Consolidated Balance Sheets, respectively.
Under master netting arrangements with the respective counterparties to the Company’s derivative contracts, the Company is allowed to net settle transactions with a single net amount payable by one party to the other. As of September 26, 2020 and September 28, 2019, the potential effects of these rights of set-off associated with the Company’s derivative contracts, including the effects of collateral, would be a reduction to both derivative assets and derivative liabilities of $2.8 billion and $2.7 billion, respectively, resulting in net derivative liabilities of $312 million and $407 million, respectively.
Accounts Receivable
Trade Receivables
The Company has considerable trade receivables outstanding with its third-party cellular network carriers, wholesalers, retailers, resellers, small and mid-sized businesses and education, enterprise and government customers. The Company generally does not require collateral from its customers; however, the Company will require collateral or third-party credit support in certain instances to limit credit risk. In addition, when possible, the Company attempts to limit credit risk on trade receivables with credit insurance for certain customers or by requiring third-party financing, loans or leases to support credit exposure. These credit-financing arrangements are directly between the third-party financing company and the end customer. As such, the Company generally does not assume any recourse or credit risk sharing related to any of these arrangements.
As of both September 26, 2020 and September 28, 2019, the Company had no customers that individually represented 10% or more of total trade receivables. The Company’s cellular network carriers accounted for 51% of total trade receivables as of September 28, 2019.
Vendor Non-Trade Receivables
The Company has non-trade receivables from certain of its manufacturing vendors resulting from the sale of components to these vendors who manufacture sub-assemblies or assemble final products for the Company. The Company purchases these components directly from suppliers. As of September 26, 2020, the Company had two vendors that individually represented 10% or more of total vendor non-trade receivables, which accounted for 57% and 11%. As of September 28, 2019, the Company had two vendors that individually represented 10% or more of total vendor non-trade receivables, which accounted for 59% and 14%.
Note 4 – Consolidated Financial Statement Details
The following tables show the Company’s consolidated financial statement details as of September 26, 2020 and September 28, 2019 (in millions):
Property, Plant and Equipment, Net
20202019
Land and buildings
$17,952 $17,085 
Machinery, equipment and internal-use software
75,291 69,797 
Leasehold improvements
10,283 9,075 
Gross property, plant and equipment
103,526 95,957 
Accumulated depreciation and amortization
(66,760)(58,579)
Total property, plant and equipment, net
$36,766 $37,378 
Other Non-Current Liabilities
20202019
Long-term taxes payable$28,170 $29,545 
Other non-current liabilities
26,320 20,958 
Total other non-current liabilities
$54,490 $50,503 
Apple Inc. | 2020 Form 10-K | 45

Other Income/(Expense), Net
The following table shows the detail of OI&E for 2020, 2019 and 2018 (in millions):
202020192018
Interest and dividend income
$3,763 $4,961 $5,686 
Interest expense
(2,873)(3,576)(3,240)
Other income/(expense), net(87)422 (441)
Total other income/(expense), net
$803 $1,807 $2,005 
Note 5 – Income Taxes
U.S. Tax Cuts and Jobs Act
On December 22, 2017, the U.S. enacted the Tax Cuts and Jobs Act (the “Act”), which significantly changed U.S. tax law. The Act lowered the Company’s U.S. statutory federal income tax rate from 35% to 21% effective January 1, 2018, while also imposing a deemed repatriation tax on previously deferred foreign income. The Act also created a new minimum tax on certain foreign earnings, for which the Company has elected to record certain deferred tax assets and liabilities.
Provision for Income Taxes and Effective Tax Rate
The provision for income taxes for 2020, 2019 and 2018, consisted of the following (in millions):
202020192018
Federal:
Current
$6,306 $6,384 $41,425 
Deferred
(3,619)(2,939)(33,819)
Total
2,687 3,445 7,606 
State:
Current
455 475 551 
Deferred
21 (67)48 
Total
476 408 599 
Foreign:
Current
3,134 3,962 3,986 
Deferred
3,383 2,666 1,181 
Total
6,517 6,628 5,167 
Provision for income taxes
$9,680 $10,481 $13,372 
The foreign provision for income taxes is based on foreign pre-tax earnings of $38.1 billion, $44.3 billion and $48.0 billion in 2020, 2019 and 2018, respectively.
A reconciliation of the provision for income taxes, with the amount computed by applying the statutory federal income tax rate (21% in 2020 and 2019; 24.5% in 2018) to income before provision for income taxes for 2020, 2019 and 2018, is as follows (dollars in millions):
202020192018
Computed expected tax
$14,089 $13,805 $17,890 
State taxes, net of federal effect
423 423 271 
Impacts of the Act(582)— 1,515 
Earnings of foreign subsidiaries(2,534)(2,625)(5,606)
Research and development credit, net
(728)(548)(560)
Excess tax benefits from equity awards
(930)(639)(675)
Other
(58)65 537 
Provision for income taxes
$9,680 $10,481 $13,372 
Effective tax rate
14.4 %15.9 %18.3 %
Apple Inc. | 2020 Form 10-K | 46

Deferred Tax Assets and Liabilities
As of September 26, 2020 and September 28, 2019, the significant components of the Company’s deferred tax assets and liabilities were (in millions):
20202019
Deferred tax assets:
Amortization and depreciation
$8,317 $11,645 
Accrued liabilities and other reserves
4,934 5,196 
Lease liabilities2,038 — 
Deferred revenue
1,638 1,372 
Other
2,409 2,174 
Total deferred tax assets19,336 20,387 
Less: Valuation allowance(1,041)(747)
Total deferred tax assets, net
18,295 19,640 
Deferred tax liabilities:
Minimum tax on foreign earnings
7,045 10,809 
Right-of-use assets1,862 — 
Unrealized gains526 186 
Other
705 600 
Total deferred tax liabilities
10,138 11,595 
Net deferred tax assets$8,157 $8,045 
Deferred tax assets and liabilities reflect the effects of tax credits and the future income tax effects of temporary differences between the consolidated financial statement carrying amounts of existing assets and liabilities and their respective tax bases, and are measured using enacted tax rates that apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.
Uncertain Tax Positions
As of September 26, 2020, the total amount of gross unrecognized tax benefits was $16.5 billion, of which $8.8 billion, if recognized, would impact the Company’s effective tax rate. As of September 28, 2019, the total amount of gross unrecognized tax benefits was $15.6 billion, of which $8.6 billion, if recognized, would have impacted the Company’s effective tax rate.
The aggregate change in the balance of gross unrecognized tax benefits, which excludes interest and penalties, for 2020, 2019 and 2018, is as follows (in millions):
202020192018
Beginning balances
$15,619 $9,694 $8,407 
Increases related to tax positions taken during a prior year
454 5,845 2,431 
Decreases related to tax positions taken during a prior year
(791)(686)(2,212)
Increases related to tax positions taken during the current year
1,347 1,697 1,824 
Decreases related to settlements with taxing authorities
(85)(852)(756)
Decreases related to expiration of the statute of limitations
(69)(79)— 
Ending balances
$16,475 $15,619 $9,694 
The Company is subject to taxation and files income tax returns in the U.S. federal jurisdiction and many state and foreign jurisdictions. The U.S. Internal Revenue Service (the “IRS”) concluded its review of the years 2013 through 2015 in 2018, and all years before 2016 are closed. Tax years after 2014 remain open in certain major foreign jurisdictions and are subject to examination by the taxing authorities. The Company believes that an adequate provision has been made for any adjustments that may result from tax examinations. However, the outcome of tax audits cannot be predicted with certainty. If any issues addressed in the Company’s tax audits are resolved in a manner inconsistent with its expectations, the Company could be required to adjust its provision for income taxes in the period such resolution occurs. Although the timing of resolution and/or closure of audits is not certain, the Company believes it is reasonably possible that its gross unrecognized tax benefits could decrease in the next 12 months by as much as $3.9 billion.
Apple Inc. | 2020 Form 10-K | 47

Interest and Penalties
The Company includes interest and penalties related to income tax matters within the provision for income taxes. As of September 26, 2020 and September 28, 2019, the total amount of gross interest and penalties accrued was $1.4 billion and $1.3 billion, respectively. The Company recognized interest and penalty expense in 2020, 2019 and 2018 of $85 million, $73 million and $489 million, respectively.
European Commission State Aid Decision
On August 30, 2016, the European Commission announced its decision that Ireland granted state aid to the Company by providing tax opinions in 1991 and 2007 concerning the tax allocation of profits of the Irish branches of two subsidiaries of the Company (the “State Aid Decision”). The State Aid Decision ordered Ireland to calculate and recover additional taxes from the Company for the period June 2003 through December 2014. Irish legislative changes, effective as of January 2015, eliminated the application of the tax opinions from that date forward. The recovery amount was calculated to be €13.1 billion, plus interest of €1.2 billion. The Company and Ireland appealed the State Aid Decision to the General Court of the Court of Justice of the European Union (the “General Court”). On July 15, 2020, the General Court annulled the State Aid Decision. On September 25, 2020, the European Commission appealed the General Court’s decision to the European Court of Justice. The Company believes that any incremental Irish corporate income taxes potentially due related to the State Aid Decision would be creditable against U.S. taxes, subject to any foreign tax credit limitations in the Act.
On an annual basis, the Company may request approval from the Irish Minister for Finance to reduce the recovery amount for certain taxes paid to other countries. As of September 26, 2020, the adjusted recovery amount was €12.9 billion, excluding interest. The adjusted recovery amount plus interest is funded into escrow, where it will remain restricted from general use pending the conclusion of all legal proceedings. Refer to the Cash, Cash Equivalents and Marketable Securities section of Note 3, “Financial Instruments” for more information.
Note 6 – Debt
Commercial Paper and Repurchase Agreements
The Company issues unsecured short-term promissory notes (“Commercial Paper”) pursuant to a commercial paper program. The Company uses net proceeds from the commercial paper program for general corporate purposes, including dividends and share repurchases. As of September 26, 2020 and September 28, 2019, the Company had $5.0 billion and $6.0 billion of Commercial Paper outstanding, respectively, with maturities generally less than nine months. The weighted-average interest rate of the Company’s Commercial Paper was 0.62% and 2.24% as of September 26, 2020 and September 28, 2019, respectively. The following table provides a summary of cash flows associated with the issuance and maturities of Commercial Paper for 2020, 2019 and 2018 (in millions):
202020192018
Maturities 90 days or less:
Proceeds from/(Repayments of) commercial paper, net$100 $(3,248)$1,044 
Maturities greater than 90 days:
Proceeds from commercial paper
6,185 13,874 14,555 
Repayments of commercial paper
(7,248)(16,603)(15,636)
Repayments of commercial paper, net(1,063)(2,729)(1,081)
Total repayments of commercial paper, net$(963)$(5,977)$(37)
In 2020, the Company entered into agreements to sell certain of its marketable securities with a promise to repurchase the securities at a specified time and amount (“Repos”). Due to the Company’s continuing involvement with the marketable securities, the Company accounted for its Repos as collateralized borrowings. The Company entered into $5.2 billion of Repos during 2020, all of which had been settled as of September 26, 2020.
Apple Inc. | 2020 Form 10-K | 48

Term Debt
As of September 26, 2020, the Company had outstanding floating- and fixed-rate notes with varying maturities for an aggregate principal amount of $106.1 billion (collectively the “Notes”). The Notes are senior unsecured obligations and interest is payable in arrears. The following table provides a summary of the Company’s term debt as of September 26, 2020 and September 28, 2019:
Maturities
(calendar year)
20202019
Amount
(in millions)
Effective
Interest Rate
Amount
(in millions)
Effective
Interest Rate
2013 – 2019 debt issuances:
Floating-rate notes
2021 – 2022
$2,250 
0.60% – 1.39%
$4,250 
2.25% – 3.28%
Fixed-rate 0.375% – 4.650% notes
2020 – 2049
87,487 
0.28% – 4.78%
97,429 
0.28% – 4.78%
First quarter 2020 debt issuance of €2.0 billion:
Fixed-rate 0.000% – 0.500% notes
2025 – 2031
2,341 
0.03% – 0.56%
— — %
Third quarter 2020 debt issuance of $8.5 billion:
Fixed-rate 0.750% – 2.650% notes
2023 – 2050
8,500 
0.84% – 2.72%
— — %
Fourth quarter 2020 debt issuance of $5.5 billion:
Fixed-rate 0.550% – 2.550% notes
2025 – 2060
5,500 
0.60% – 2.59%
— — %
Total term debt106,078 101,679 
Unamortized premium/(discount) and issuance costs, net
(314)(224)
Hedge accounting fair value adjustments1,676 612 
Less: Current portion of term debt(8,773)(10,260)
Total non-current portion of term debt$98,667 $91,807 
To manage interest rate risk on certain of its U.S. dollar–denominated fixed- or floating-rate notes, the Company has entered into interest rate swaps to effectively convert the fixed interest rates to floating interest rates or the floating interest rates to fixed interest rates on a portion of these notes. Additionally, to manage foreign currency risk on certain of its foreign currency–denominated notes, the Company has entered into foreign currency swaps to effectively convert these notes to U.S. dollar–denominated notes.
As of September 28, 2019, a portion of the Company’s Japanese yen–denominated notes with a carrying value of $1.0 billion was designated as a hedge of the foreign currency exposure of the Company’s net investment in a foreign operation. The Company’s Japanese yen–denominated notes matured during 2020 and the associated net investment hedges were terminated. For further discussion regarding the Company’s use of derivative instruments, refer to the Derivative Financial Instruments section of Note 3, “Financial Instruments.”
The effective interest rates for the Notes include the interest on the Notes, amortization of the discount or premium and, if applicable, adjustments related to hedging. The Company recognized $2.8 billion, $3.2 billion and $3.0 billion of interest cost on its term debt for 2020, 2019 and 2018, respectively.
The future principal payments for the Company’s Notes as of September 26, 2020, are as follows (in millions):
2021$8,750 
20229,569 
202311,389 
202410,115 
202510,914 
Thereafter55,341 
Total term debt$106,078 
As of September 26, 2020 and September 28, 2019, the fair value of the Company’s Notes, based on Level 2 inputs, was $117.1 billion and $107.5 billion, respectively.
Apple Inc. | 2020 Form 10-K | 49

Note 7 – Shareholders’ Equity
Share Repurchase Program
As of September 26, 2020, the Company was authorized to purchase up to $225 billion of the Company’s common stock under a share repurchase program, of which $168.6 billion had been utilized. During 2020, the Company repurchased 917 million shares of its common stock for $72.5 billion, including 141 million shares delivered under a $10.0 billion November 2019 accelerated share repurchase arrangement (“ASR”) and 64 million shares delivered under a $6.0 billion May 2020 ASR. The Company’s share repurchase program does not obligate it to acquire any specific number of shares. Under this program, shares may be repurchased in privately negotiated and/or open market transactions, including under plans complying with Rule 10b5-1 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”).
Shares of Common Stock
The following table shows the changes in shares of common stock for 2020, 2019 and 2018 (in thousands):
202020192018
Common stock outstanding, beginning balances
17,772,945 19,019,943 20,504,805 
Common stock repurchased
(917,270)(1,380,819)(1,622,198)
Common stock issued, net of shares withheld for employee taxes
121,088 133,821 137,336 
Common stock outstanding, ending balances
16,976,763 17,772,945 19,019,943 
Note 8 – Comprehensive Income
The Company’s OCI consists of foreign currency translation adjustments from those subsidiaries not using the U.S. dollar as their functional currency, net deferred gains and losses on certain derivative instruments accounted for as cash flow hedges and unrealized gains and losses on marketable debt securities classified as available-for-sale.
The following table shows the pre-tax amounts reclassified from AOCI into the Consolidated Statements of Operations, and the associated financial statement line items, for 2020 and 2019 (in millions):
Comprehensive Income ComponentsFinancial Statement Line Items20202019
Unrealized (gains)/losses on derivative instruments:
Foreign exchange contracts
Total net sales
$(365)$(206)
Total cost of sales
(584)(482)
Other income/(expense), net
(604)784 
Interest rate contracts
Other income/(expense), net
8 7 
(1,545)103 
Unrealized (gains)/losses on marketable debt securities
Other income/(expense), net
(82)31 
Total amounts reclassified from AOCI
$(1,627)$134 
Apple Inc. | 2020 Form 10-K | 50

The following table shows the changes in AOCI by component for 2020 and 2019 (in millions):
Cumulative Foreign
Currency Translation		Unrealized Gains/Losses
on Derivative Instruments		Unrealized Gains/Losses
on Marketable Debt Securities		Total
Balances as of September 29, 2018$(1,055)$810 $(3,209)$(3,454)
Other comprehensive income/(loss) before reclassifications
(421)(949)4,854 3,484 
Amounts reclassified from AOCI
— 103 31 134 
Tax effect
13 208 (1,058)(837)
Other comprehensive income/(loss)
(408)(638)3,827 2,781 
Cumulative effect of change in accounting principle— — 89 89 
Balances as of September 28, 2019(1,463)172 707 (584)
Other comprehensive income/(loss) before reclassifications
91 115 1,560 1,766 
Amounts reclassified from AOCI
— (1,545)(82)(1,627)
Tax effect
(3)245 (339)(97)
Other comprehensive income/(loss)
88 (1,185)1,139 42 
Cumulative effect of change in accounting principle (1)
— 136 — 136 
Balances as of September 26, 2020$(1,375)$(877)$1,846 $(406)
(1)Refer to Note 1, “Summary of Significant Accounting Policies” for more information on the Company’s adoption of ASU 2017-12 in 2020.
Note 9 – Benefit Plans
2014 Employee Stock Plan
In the second quarter of 2014, shareholders approved the 2014 Employee Stock Plan (the “2014 Plan”) and terminated the Company’s authority to grant new awards under the 2003 Employee Stock Plan (the “2003 Plan”). The 2014 Plan provides for broad-based equity grants to employees, including executive officers, and permits the granting of RSUs, stock grants, performance-based awards, stock options and stock appreciation rights, as well as cash bonus awards. RSUs granted under the 2014 Plan generally vest over four years, based on continued employment, and are settled upon vesting in shares of the Company’s common stock on a one-for-one basis. RSUs granted under the 2014 Plan reduce the number of shares available for grant under the plan by a factor of two times the number of RSUs granted. RSUs canceled and shares withheld to satisfy tax withholding obligations increase the number of shares available for grant under the 2014 Plan utilizing a factor of two times the number of RSUs canceled or shares withheld. Currently, all RSUs granted under the 2014 Plan have dividend equivalent rights (“DERs”), which entitle holders of RSUs to the same dividend value per share as holders of common stock. DERs are subject to the same vesting and other terms and conditions as the corresponding unvested RSUs. DERs are accumulated and paid when the underlying shares vest. Upon approval of the 2014 Plan, the Company reserved 1.54 billion shares plus the number of shares remaining that were reserved but not issued under the 2003 Plan. Shares subject to outstanding awards under the 2003 Plan that expire, are canceled or otherwise terminate, or are withheld to satisfy tax withholding obligations for RSUs, will also be available for awards under the 2014 Plan. As of September 26, 2020, approximately 808 million shares were reserved for future issuance under the 2014 Plan.
Apple Inc. Non-Employee Director Stock Plan
The Apple Inc. Non-Employee Director Stock Plan (the “Director Plan”) is a shareholder-approved plan that (i) permits the Company to grant awards of RSUs or stock options to the Company’s non-employee directors, (ii) provides for automatic initial grants of RSUs upon a non-employee director joining the Board of Directors and automatic annual grants of RSUs at each annual meeting of shareholders, and (iii) permits the Board of Directors to prospectively change the value and relative mixture of stock options and RSUs for the initial and annual award grants and the methodology for determining the number of shares of the Company’s common stock subject to these grants, in each case within the limits set forth in the Director Plan and without further shareholder approval. RSUs granted under the Director Plan reduce the number of shares available for grant under the plan by a factor of two times the number of RSUs granted. The Director Plan expires on November 12, 2027. All RSUs granted under the Director Plan are entitled to DERs. DERs are subject to the same vesting and other terms and conditions as the corresponding unvested RSUs. DERs are accumulated and paid when the underlying shares vest. As of September 26, 2020, approximately 4 million shares were reserved for future issuance under the Director Plan.
Apple Inc. | 2020 Form 10-K | 51

Rule 10b5-1 Trading Plans
During the three months ended September 26, 2020, Section 16 officers Katherine L. Adams, Timothy D. Cook, Chris Kondo, Luca Maestri, Deirdre O’Brien and Jeffrey Williams had equity trading plans in place in accordance with Rule 10b5-1(c)(1) under the Exchange Act. An equity trading plan is a written document that pre-establishes the amounts, prices and dates (or formula for determining the amounts, prices and dates) of future purchases or sales of the Company’s stock, including shares acquired under the Company’s employee and director equity plans.
Employee Stock Purchase Plan
The Employee Stock Purchase Plan (the “Purchase Plan”) is a shareholder-approved plan under which substantially all employees may purchase the Company’s common stock through payroll deductions at a price equal to 85% of the lower of the fair market values of the stock as of the beginning or the end of six-month offering periods. An employee’s payroll deductions under the Purchase Plan are limited to 10% of the employee’s compensation and employees may not purchase more than $25,000 of stock during any calendar year. As of September 26, 2020, approximately 107 million shares were reserved for future issuance under the Purchase Plan.
401(k) Plan
The Company’s 401(k) Plan is a deferred salary arrangement under Section 401(k) of the Internal Revenue Code. Under the 401(k) Plan, participating U.S. employees may defer a portion of their pre-tax earnings, up to the IRS annual contribution limit ($19,500 for calendar year 2020). The Company matches 50% to 100% of each employee’s contributions, depending on length of service, up to a maximum of 6% of the employee’s eligible earnings.
Restricted Stock Units
A summary of the Company’s RSU activity and related information for 2020, 2019 and 2018, is as follows:
Number of
RSUs
(in thousands)
Weighted-Average
Grant Date Fair
Value Per RSU
Aggregate
Fair Value
(in millions)
Balance as of September 30, 2017390,284 $27.58 
RSUs granted
181,402 $40.72 
RSUs vested
(178,873)$27.81 
RSUs canceled
(24,195)$31.95 
Balance as of September 29, 2018368,618 $33.65 
RSUs granted
147,409 $53.99 
RSUs vested
(168,350)$33.80 
RSUs canceled
(21,609)$40.71 
Balance as of September 28, 2019326,068 $42.30 
RSUs granted
156,800 $59.20 
RSUs vested
(157,743)$40.29 
RSUs canceled
(14,347)$48.07 
Balance as of September 26, 2020310,778 $51.58 $34,894 
The fair value as of the respective vesting dates of RSUs was $10.8 billion, $8.6 billion and $7.6 billion for 2020, 2019 and 2018, respectively. The majority of RSUs that vested in 2020, 2019 and 2018 were net share settled such that the Company withheld shares with a value equivalent to the employees’ obligation for the applicable income and other employment taxes, and remitted the cash to the appropriate taxing authorities. The total shares withheld were approximately 56 million, 59 million and 64 million for 2020, 2019 and 2018, respectively, and were based on the value of the RSUs on their respective vesting dates as determined by the Company’s closing stock price. Total payments for the employees’ tax obligations to taxing authorities were $3.9 billion, $3.0 billion and $2.7 billion in 2020, 2019 and 2018, respectively.
Apple Inc. | 2020 Form 10-K | 52

Share-Based Compensation
The following table shows share-based compensation expense and the related income tax benefit included in the Consolidated Statements of Operations for 2020, 2019 and 2018 (in millions):
202020192018
Share-based compensation expense$6,829 $6,068 $5,340 
Income tax benefit related to share-based compensation expense
$(2,476)$(1,967)$(1,893)
As of September 26, 2020, the total unrecognized compensation cost related to outstanding RSUs and stock options was $12.2 billion, which the Company expects to recognize over a weighted-average period of 2.6 years.
Note 10 – Commitments and Contingencies
Accrued Warranty and Guarantees
The following table shows changes in the Company’s accrued warranties and related costs for 2020, 2019 and 2018 (in millions):
202020192018
Beginning accrued warranty and related costs
$3,570 $3,692 $3,834 
Cost of warranty claims
(2,956)(3,857)(4,115)
Accruals for product warranty
2,740 3,735 3,973 
Ending accrued warranty and related costs
$3,354 $3,570 $3,692 
The Company offers an iPhone Upgrade Program, which is available to customers who purchase a qualifying iPhone in the U.S., the U.K. and China mainland. The iPhone Upgrade Program provides customers the right to trade in that iPhone for a specified amount when purchasing a new iPhone, provided certain conditions are met. The Company accounts for the trade-in right as a guarantee liability and recognizes arrangement revenue net of the fair value of such right, with subsequent changes to the guarantee liability recognized within net sales.
Concentrations in the Available Sources of Supply of Materials and Product
Although most components essential to the Company’s business are generally available from multiple sources, certain components are currently obtained from single or limited sources. The Company also competes for various components with other participants in the markets for smartphones, personal computers, tablets and other electronic devices. Therefore, many components used by the Company, including those that are available from multiple sources, are at times subject to industry-wide shortage and significant commodity pricing fluctuations.
The Company uses some custom components that are not commonly used by its competitors, and new products introduced by the Company often utilize custom components available from only one source. When a component or product uses new technologies, initial capacity constraints may exist until the suppliers’ yields have matured or their manufacturing capacities have increased. The continued availability of these components at acceptable prices, or at all, may be affected if suppliers decide to concentrate on the production of common components instead of components customized to meet the Company’s requirements.
The Company has entered into agreements for the supply of many components; however, there can be no guarantee that the Company will be able to extend or renew these agreements on similar terms, or at all.
Substantially all of the Company’s hardware products are manufactured by outsourcing partners that are located primarily in Asia, with some Mac computers manufactured in the U.S. and Ireland.
Apple Inc. | 2020 Form 10-K | 53

Unconditional Purchase Obligations
The Company has entered into certain off–balance sheet commitments that require the future purchase of goods or services (“unconditional purchase obligations”). The Company’s unconditional purchase obligations primarily consist of payments for supplier arrangements, Internet and telecommunication services, intellectual property licenses and content creation. Future payments under noncancelable unconditional purchase obligations having a remaining term in excess of one year as of September 26, 2020, are as follows (in millions):
2021$3,476 
20222,885 
20231,700 
2024357 
2025104 
Thereafter130 
Total$8,652 
Contingencies
The Company is subject to various legal proceedings and claims that have arisen in the ordinary course of business and that have not been fully resolved. The outcome of litigation is inherently uncertain. If one or more legal matters were resolved against the Company in a reporting period for amounts above management’s expectations, the Company’s financial condition and operating results for that reporting period could be materially adversely affected. In the opinion of management, there was not at least a reasonable possibility the Company may have incurred a material loss, or a material loss greater than a recorded accrual, concerning loss contingencies for asserted legal and other claims, except for the following matters:
VirnetX
VirnetX, Inc. (“VirnetX”) filed a lawsuit against the Company alleging that certain of the Company’s products infringe on patents owned by VirnetX. On April 11, 2018, a jury returned a verdict against the Company and awarded damages of $503 million. The Company appealed the verdict to the U.S. Court of Appeals for the Federal Circuit, which remanded the case back to the U.S. District Court for the Eastern District of Texas, where it is scheduled for a re-trial in October 2020. The Company has challenged the validity of the patents at issue in the re-trial at the U.S. Patent and Trademark Office (the “PTO”), and the PTO has declared the patents invalid, subject to further appeal by VirnetX.
iOS Performance Management Cases
Various civil litigation matters have been filed in state and federal courts in the U.S. and in various international jurisdictions alleging violation of consumer protection laws, fraud, computer intrusion and other causes of action related to the Company’s performance management feature used in its iPhone operating systems, introduced to certain iPhones in iOS updates 10.2.1 and 11.2. The claims seek monetary damages and other non-monetary relief. On April 5, 2018, several U.S. federal actions were consolidated through a Multidistrict Litigation process into a single action in the U.S. District Court for the Northern District of California (the “Northern California District Court”). On February 28, 2020, the parties in the Multidistrict Litigation reached a settlement to resolve the U.S. federal and California state class actions. Under the terms of the settlement, which the Northern California District Court preliminarily approved in May 2020, the Company has agreed to pay up to $500 million in the aggregate to certain U.S. owners of iPhones if certain conditions are met. The final amount of the settlement will be determined based on the number of consumers who file valid claims and the attorneys’ fee award. However, the Company has agreed to pay at least $310 million to settle the claims. In addition to civil litigation, the Company is also responding to governmental investigations and requests for information relating to the performance management feature. The Company continues to believe that its iPhones were not defective, that the performance management feature introduced with iOS updates 10.2.1 and 11.2 was intended to, and did, improve customers’ user experience, and that the Company did not make any misleading statements or fail to disclose any material information. The Company has accrued its best estimate for the ultimate resolution of these matters.
French Competition Authority
On March 16, 2020, the French Competition Authority (“FCA”) announced its decision that aspects of the Company’s sales and distribution practices in France violate French competition law, and issued a fine of €1.1 billion. The Company strongly disagrees with the FCA’s decision, and has appealed.
Apple Inc. | 2020 Form 10-K | 54

Optis
Optis Wireless Technology, LLC and related entities (“Optis”) filed a lawsuit in the U.S. District Court for the Eastern District of Texas against the Company alleging that certain of the Company’s products infringe on patents owned by Optis. On August 11, 2020, a jury returned a verdict against the Company and awarded damages of $506 million. The Company has asked the court to set aside the verdict, where the case remains pending.
Note 11 – Segment Information and Geographic Data
The Company reports segment information based on the “management” approach. The management approach designates the internal reporting used by management for making decisions and assessing performance as the source of the Company’s reportable segments.
The Company manages its business primarily on a geographic basis. The Company’s reportable segments consist of the Americas, Europe, Greater China, Japan and Rest of Asia Pacific. Americas includes both North and South America. Europe includes European countries, as well as India, the Middle East and Africa. Greater China includes China mainland, Hong Kong and Taiwan. Rest of Asia Pacific includes Australia and those Asian countries not included in the Company’s other reportable segments. Although the reportable segments provide similar hardware and software products and similar services, each one is managed separately to better align with the location of the Company’s customers and distribution partners and the unique market dynamics of each geographic region. The accounting policies of the various segments are the same as those described in Note 1, “Summary of Significant Accounting Policies.”
The Company evaluates the performance of its reportable segments based on net sales and operating income. Net sales for geographic segments are generally based on the location of customers and sales through the Company’s retail stores located in those geographic locations. Operating income for each segment includes net sales to third parties, related cost of sales and operating expenses directly attributable to the segment. Advertising expenses are generally included in the geographic segment in which the expenditures are incurred. Operating income for each segment excludes other income and expense and certain expenses managed outside the reportable segments. Costs excluded from segment operating income include various corporate expenses such as research and development, corporate marketing expenses, certain share-based compensation expenses, income taxes, various nonrecurring charges and other separately managed general and administrative costs. The Company does not include intercompany transfers between segments for management reporting purposes.
The following table shows information by reportable segment for 2020, 2019 and 2018 (in millions):
202020192018
Americas:
Net sales
$124,556 $116,914 $112,093 
Operating income
$37,722 $35,099 $34,864 
Europe:
Net sales
$68,640 $60,288 $62,420 
Operating income
$22,170 $19,195 $19,955 
Greater China:
Net sales
$40,308 $43,678 $51,942 
Operating income
$15,261 $16,232 $19,742 
Japan:
Net sales
$21,418 $21,506 $21,733 
Operating income
$9,279 $9,369 $9,500 
Rest of Asia Pacific:
Net sales
$19,593 $17,788 $17,407 
Operating income
$6,808 $6,055 $6,181 
Apple Inc. | 2020 Form 10-K | 55

A reconciliation of the Company’s segment operating income to the Consolidated Statements of Operations for 2020, 2019 and 2018 is as follows (in millions):
202020192018
Segment operating income
$91,240 $85,950 $90,242 
Research and development expense
(18,752)(16,217)(14,236)
Other corporate expenses, net
(6,200)(5,803)(5,108)
Total operating income
$66,288 $63,930 $70,898 
The U.S. and China were the only countries that accounted for more than 10% of the Company’s net sales in 2020, 2019 and 2018. There was no single customer that accounted for more than 10% of net sales in 2020, 2019 and 2018. Net sales for 2020, 2019 and 2018 and long-lived assets as of September 26, 2020 and September 28, 2019 were as follows (in millions):
202020192018
Net sales:
U.S.$109,197 $102,266 $98,061 
China (1)
40,308 43,678 51,942 
Other countries
125,010 114,230 115,592 
Total net sales
$274,515 $260,174 $265,595 
20202019
Long-lived assets:
U.S.$25,890 $24,711 
China (1)
7,256 9,064 
Other countries
3,620 3,603 
Total long-lived assets
$36,766 $37,378 
(1)China includes Hong Kong and Taiwan. Long-lived assets located in China consist primarily of product tooling and manufacturing process equipment and assets related to retail stores and related infrastructure.
Note 12 – Leases
The Company has lease arrangements for certain equipment and facilities, including retail, corporate, manufacturing and data center space. These leases typically have original terms not exceeding 10 years and generally contain multi-year renewal options, some of which are reasonably certain of exercise. The Company’s lease arrangements may contain both lease and non-lease components. The Company has elected to combine and account for lease and non-lease components as a single lease component for leases of retail, corporate, and data center facilities.
Payments under the Company’s lease arrangements may be fixed or variable, and variable lease payments are primarily based on purchases of output of the underlying leased assets. Lease costs associated with fixed payments on the Company’s operating leases were $1.5 billion for 2020. Lease costs associated with variable payments on the Company’s leases were $9.3 billion for 2020. Rent expense for operating leases, as previously reported under former lease accounting standards, was $1.3 billion and $1.2 billion in 2019 and 2018, respectively.
For 2020, the Company made $1.5 billion of fixed cash payments related to operating leases. Non-cash activities involving ROU assets obtained in exchange for lease liabilities were $10.5 billion for 2020, including the impact of adopting the new leases standard in the first quarter of 2020.
Apple Inc. | 2020 Form 10-K | 56

The following table shows ROU assets and lease liabilities, and the associated financial statement line items, as of September 26, 2020 (in millions):
Lease-Related Assets and LiabilitiesFinancial Statement Line Items2020
Right-of-use assets:
Operating leasesOther non-current assets$8,570 
Finance leasesProperty, plant and equipment, net629 
Total right-of-use assets$9,199 
Lease liabilities:
Operating leasesOther current liabilities$1,436 
Other non-current liabilities7,745 
Finance leasesOther current liabilities24 
Other non-current liabilities637 
Total lease liabilities$9,842 
Lease liability maturities as of September 26, 2020, are as follows (in millions):
Operating
Leases		Finance
Leases		Total
2021$1,493 $43 $1,536 
20221,461 43 1,504 
20231,317 54 1,371 
20241,068 30 1,098 
2025960 25 985 
Thereafter3,845 895 4,740 
Total undiscounted liabilities10,144 1,090 11,234 
Less: Imputed interest(963)(429)(1,392)
Total lease liabilities$9,181 $661 $9,842 
The weighted-average remaining lease term and discount rate related to the Company’s lease liabilities as of September 26, 2020 were 10.3 years and 2.0%, respectively. The discount rates are generally based on estimates of the Company’s incremental borrowing rate, as the discount rates implicit in the Company’s leases cannot be readily determined.
As of September 26, 2020, the Company had $1.7 billion of future payments under additional leases, primarily for corporate facilities and retail space, that had not yet commenced. These leases will commence between 2021 and 2022, with lease terms ranging from 1 year to 20 years.
Note 13 – Selected Quarterly Financial Information (Unaudited)
The following tables show a summary of the Company’s quarterly financial information for each of the four quarters of 2020 and 2019 (in millions, except per share amounts):
Fourth QuarterThird QuarterSecond QuarterFirst Quarter
2020:
Total net sales
$64,698 $59,685 $58,313 $91,819 
Gross margin
$24,689 $22,680 $22,370 $35,217 
Net income
$12,673 $11,253 $11,249 $22,236 
Earnings per share (1):
Basic$0.74 $0.65 $0.64 $1.26 
Diluted$0.73 $0.65 $0.64 $1.25 
Apple Inc. | 2020 Form 10-K | 57

Fourth QuarterThird QuarterSecond QuarterFirst Quarter
2019:
Total net sales
$64,040 $53,809 $58,015 $84,310 
Gross margin
$24,313 $20,227 $21,821 $32,031 
Net income
$13,686 $10,044 $11,561 $19,965 
Earnings per share (1):
Basic
$0.76 $0.55 $0.62 $1.05 
Diluted
$0.76 $0.55 $0.61 $1.05 
(1)Basic and diluted earnings per share are computed independently for each of the quarters presented. Therefore, the sum of quarterly basic and diluted per share information may not equal annual basic and diluted earnings per share.
Apple Inc. | 2020 Form 10-K | 58


Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of Apple Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Apple Inc. as of September 26, 2020 and September 28, 2019, the related consolidated statements of operations, comprehensive income, shareholders’ equity and cash flows for each of the three years in the period ended September 26, 2020, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of Apple Inc. at September 26, 2020 and September 28, 2019, and the results of its operations and its cash flows for each of the three years in the period ended September 26, 2020, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (the “PCAOB”), Apple Inc.’s internal control over financial reporting as of September 26, 2020, based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated October 29, 2020 expressed an unqualified opinion thereon.
Basis for Opinion
These financial statements are the responsibility of Apple Inc.’s management. Our responsibility is to express an opinion on Apple Inc.’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to Apple Inc. in accordance with the U.S. federal securities laws and the applicable rules and regulations of the U.S. Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the account or disclosure to which it relates.
Uncertain Tax Positions
Description of the Matter
As discussed in Note 5 to the financial statements, Apple Inc. is subject to taxation and files income tax returns in the U.S. federal jurisdiction and many state and foreign jurisdictions. As of September 26, 2020, the total amount of gross unrecognized tax benefits was $16.5 billion, of which $8.8 billion, if recognized, would impact Apple Inc.’s effective tax rate. Apple Inc. uses significant judgment in the calculation of tax liabilities in estimating the impact of uncertainties in the application of technical merits and complex tax laws.
Auditing management’s evaluation of whether an uncertain tax position is more likely than not to be sustained and the measurement of the benefit of various tax positions can be complex, involves significant judgment, and is based on interpretations of tax laws and legal rulings.
Apple Inc. | 2020 Form 10-K | 59

How We Addressed the
Matter in Our Audit
We tested controls relating to the evaluation of uncertain tax positions, including controls over management’s assessment as to whether tax positions are more likely than not to be sustained, management’s process to measure the benefit of its tax positions, and the development of the related disclosures.
To evaluate Apple Inc.’s assessment of which tax positions are more likely than not to be sustained, our audit procedures included, among others, reading and evaluating management’s assumptions and analysis, and, as applicable, Apple Inc.’s communications with taxing authorities, that detailed the basis and technical merits of the uncertain tax positions. We involved our tax subject matter resources in assessing the technical merits of certain of Apple Inc.’s tax positions based on our knowledge of relevant tax laws and experience with related taxing authorities. For certain tax positions, we also received external legal counsel confirmation letters and discussed the matters with external advisors and Apple Inc. tax personnel. In addition, we evaluated Apple Inc.’s disclosure in relation to these matters included in Note 5 to the financial statements.
/s/ Ernst & Young LLP
We have served as Apple Inc.’s auditor since 2009.

San Jose, California
October 29, 2020
Apple Inc. | 2020 Form 10-K | 60


Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of Apple Inc.
Opinion on Internal Control Over Financial Reporting
We have audited Apple Inc.’s internal control over financial reporting as of September 26, 2020, based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the “COSO criteria”). In our opinion, Apple Inc. maintained, in all material respects, effective internal control over financial reporting as of September 26, 2020, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (the “PCAOB”), the consolidated balance sheets of Apple Inc. as of September 26, 2020 and September 28, 2019, the related consolidated statements of operations, comprehensive income, shareholders’ equity and cash flows for each of the three years in the period ended September 26, 2020, and the related notes and our report dated October 29, 2020 expressed an unqualified opinion thereon.
Basis for Opinion
Apple Inc.’s management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Annual Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on Apple Inc.’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to Apple Inc. in accordance with the U.S. federal securities laws and the applicable rules and regulations of the U.S. Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.


/s/ Ernst & Young LLP

San Jose, California
October 29, 2020
Apple Inc. | 2020 Form 10-K | 61

YEAR 2019
Item 8.
Financial Statements and Supplementary Data
Index to Consolidated Financial Statements
 
Page
 
 
 
 
 
 
 
 
All financial statement schedules have been omitted, since the required information is not applicable or is not present in amounts sufficient to require submission of the schedule, or because the information required is included in the consolidated financial statements and accompanying notes.

Apple Inc. | 2019 Form 10-K | 28

Apple Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In millions, except number of shares which are reflected in thousands and per share amounts)

 
Years ended
 
September 28,
2019
 
September 29,
2018
 
September 30,
2017
Net sales:
 
 
 
 
 
Products
$
213,883

 
$
225,847

 
$
196,534

Services
46,291

 
39,748

 
32,700

Total net sales
260,174

 
265,595

 
229,234

 
 
 
 
 
 
Cost of sales:
 
 
 
 
 
Products
144,996

 
148,164

 
126,337

Services
16,786

 
15,592

 
14,711

Total cost of sales
161,782

 
163,756

 
141,048

Gross margin
98,392


101,839


88,186

 
 
 
 
 
 
Operating expenses:
 
 
 
 
 
Research and development
16,217

 
14,236

 
11,581

Selling, general and administrative
18,245

 
16,705

 
15,261

Total operating expenses
34,462


30,941


26,842

 
 
 
 
 
 
Operating income
63,930

 
70,898

 
61,344

Other income/(expense), net
1,807

 
2,005

 
2,745

Income before provision for income taxes
65,737


72,903


64,089

Provision for income taxes
10,481

 
13,372

 
15,738

Net income
$
55,256


$
59,531


$
48,351

 
 
 
 
 
 
Earnings per share:
 
 
 
 
 
Basic
$
11.97

 
$
12.01

 
$
9.27

Diluted
$
11.89

 
$
11.91

 
$
9.21

 
 
 
 
 
 
Shares used in computing earnings per share:
 
 
 
 
 
Basic
4,617,834

 
4,955,377

 
5,217,242

Diluted
4,648,913

 
5,000,109

 
5,251,692

See accompanying Notes to Consolidated Financial Statements.

Apple Inc. | 2019 Form 10-K | 29

Apple Inc.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In millions)

 
Years ended
 
September 28,
2019
 
September 29,
2018
 
September 30,
2017
Net income
$
55,256

 
$
59,531

 
$
48,351

Other comprehensive income/(loss):
 
 
 
 
 
Change in foreign currency translation, net of tax
(408
)
 
(525
)
 
224

 
 
 
 
 
 
Change in unrealized gains/losses on derivative instruments, net of tax:
 
 
 
 
 
Change in fair value of derivatives
(661
)
 
523

 
1,315

Adjustment for net (gains)/losses realized and included in net income
23

 
382

 
(1,477
)
Total change in unrealized gains/losses on derivative instruments
(638
)

905


(162
)
 
 
 
 
 
 
Change in unrealized gains/losses on marketable securities, net of tax:
 
 
 
 
 
Change in fair value of marketable securities
3,802

 
(3,407
)
 
(782
)
Adjustment for net (gains)/losses realized and included in net income
25

 
1

 
(64
)
Total change in unrealized gains/losses on marketable securities
3,827


(3,406
)

(846
)
 
 
 
 
 
 
Total other comprehensive income/(loss)
2,781


(3,026
)

(784
)
Total comprehensive income
$
58,037


$
56,505


$
47,567

See accompanying Notes to Consolidated Financial Statements.

Apple Inc. | 2019 Form 10-K | 30

Apple Inc.
CONSOLIDATED BALANCE SHEETS
(In millions, except number of shares which are reflected in thousands and par value)

 
September 28,
2019
 
September 29,
2018
ASSETS:
Current assets:
 
 
 
Cash and cash equivalents
$
48,844

 
$
25,913

Marketable securities
51,713

 
40,388

Accounts receivable, net
22,926

 
23,186

Inventories
4,106

 
3,956

Vendor non-trade receivables
22,878

 
25,809

Other current assets
12,352

 
12,087

Total current assets
162,819

 
131,339

 
 
 
 
Non-current assets:
 
 
 
Marketable securities
105,341

 
170,799

Property, plant and equipment, net
37,378

 
41,304

Other non-current assets
32,978

 
22,283

Total non-current assets
175,697

 
234,386

Total assets
$
338,516

 
$
365,725

 
 
 
 
LIABILITIES AND SHAREHOLDERS’ EQUITY:
Current liabilities:
 
 
 
Accounts payable
$
46,236

 
$
55,888

Other current liabilities
37,720

 
33,327

Deferred revenue
5,522

 
5,966

Commercial paper
5,980

 
11,964

Term debt
10,260

 
8,784

Total current liabilities
105,718

 
115,929

 
 
 
 
Non-current liabilities:
 
 
 
Term debt
91,807

 
93,735

Other non-current liabilities
50,503

 
48,914

Total non-current liabilities
142,310

 
142,649

Total liabilities
248,028

 
258,578

 
 
 
 
Commitments and contingencies

 

 
 
 
 
Shareholders’ equity:
 
 
 
Common stock and additional paid-in capital, $0.00001 par value: 12,600,000 shares authorized; 4,443,236 and 4,754,986 shares issued and outstanding, respectively
45,174

 
40,201

Retained earnings
45,898

 
70,400

Accumulated other comprehensive income/(loss)
(584
)
 
(3,454
)
Total shareholders’ equity
90,488

 
107,147

Total liabilities and shareholders’ equity
$
338,516


$
365,725

See accompanying Notes to Consolidated Financial Statements.

Apple Inc. | 2019 Form 10-K | 31

Apple Inc.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(In millions, except per share amounts)

 
Years ended
 
September 28,
2019
 
September 29,
2018
 
September 30,
2017
Total shareholders’ equity, beginning balances
$
107,147

 
$
134,047

 
$
128,249

 
 
 
 
 
 
Common stock and additional paid-in capital:
 
 
 
 
 
Beginning balances
40,201

 
35,867

 
31,251

Common stock issued
781

 
669

 
555

Common stock withheld related to net share settlement of equity awards
(2,002
)
 
(1,778
)
 
(1,468
)
Share-based compensation
6,194

 
5,443

 
4,909

Tax benefit from equity awards, including transfer pricing adjustments
—

 
—

 
620

Ending balances
45,174

 
40,201

 
35,867

 
 
 
 
 
 
Retained earnings:
 
 
 
 
 
Beginning balances
70,400

 
98,330

 
96,364

Net income
55,256

 
59,531

 
48,351

Dividends and dividend equivalents declared
(14,129
)
 
(13,735
)
 
(12,803
)
Common stock withheld related to net share settlement of equity awards
(1,029
)
 
(948
)
 
(581
)
Common stock repurchased
(67,101
)
 
(73,056
)
 
(33,001
)
Cumulative effects of changes in accounting principles
2,501

 
278

 
—

Ending balances
45,898

 
70,400

 
98,330

 
 
 
 
 
 
Accumulated other comprehensive income/(loss):
 
 
 
 
 
Beginning balances
(3,454
)
 
(150
)
 
634

Other comprehensive income/(loss)
2,781

 
(3,026
)
 
(784
)
Cumulative effects of changes in accounting principles
89

 
(278
)
 
—

Ending balances
(584
)
 
(3,454
)
 
(150
)
 
 
 
 
 
 
Total shareholders’ equity, ending balances
$
90,488

 
$
107,147

 
$
134,047

 
 
 
 
 
 
Dividends and dividend equivalents declared per share or RSU
$
3.00

 
$
2.72

 
$
2.40

See accompanying Notes to Consolidated Financial Statements.

Apple Inc. | 2019 Form 10-K | 32

Apple Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
 
Years ended
 
September 28,
2019
 
September 29,
2018
 
September 30,
2017
Cash, cash equivalents and restricted cash, beginning balances
$
25,913

 
$
20,289

 
$
20,484

Operating activities:
 
 
 
 
 
Net income
55,256

 
59,531

 
48,351

Adjustments to reconcile net income to cash generated by operating activities:
 
 
 
 
 
Depreciation and amortization
12,547

 
10,903

 
10,157

Share-based compensation expense
6,068

 
5,340

 
4,840

Deferred income tax expense/(benefit)
(340
)
 
(32,590
)
 
5,966

Other
(652
)
 
(444
)
 
(166
)
Changes in operating assets and liabilities:
 
 
 
 
 
Accounts receivable, net
245

 
(5,322
)
 
(2,093
)
Inventories
(289
)
 
828

 
(2,723
)
Vendor non-trade receivables
2,931

 
(8,010
)
 
(4,254
)
Other current and non-current assets
873

 
(423
)
 
(5,318
)
Accounts payable
(1,923
)
 
9,175

 
8,966

Deferred revenue
(625
)
 
(3
)
 
(593
)
Other current and non-current liabilities
(4,700
)
 
38,449

 
1,092

Cash generated by operating activities
69,391


77,434


64,225

Investing activities:
 
 
 
 
 
Purchases of marketable securities
(39,630
)
 
(71,356
)
 
(159,486
)
Proceeds from maturities of marketable securities
40,102

 
55,881

 
31,775

Proceeds from sales of marketable securities
56,988

 
47,838

 
94,564

Payments for acquisition of property, plant and equipment
(10,495
)
 
(13,313
)
 
(12,451
)
Payments made in connection with business acquisitions, net
(624
)
 
(721
)
 
(329
)
Purchases of non-marketable securities
(1,001
)
 
(1,871
)
 
(521
)
Proceeds from non-marketable securities
1,634

 
353

 
126

Other
(1,078
)
 
(745
)
 
(124
)
Cash generated by/(used in) investing activities
45,896


16,066


(46,446
)
Financing activities:
 
 
 
 
 
Proceeds from issuance of common stock
781

 
669

 
555

Payments for taxes related to net share settlement of equity awards
(2,817
)
 
(2,527
)
 
(1,874
)
Payments for dividends and dividend equivalents
(14,119
)
 
(13,712
)
 
(12,769
)
Repurchases of common stock
(66,897
)
 
(72,738
)
 
(32,900
)
Proceeds from issuance of term debt, net
6,963

 
6,969

 
28,662

Repayments of term debt
(8,805
)
 
(6,500
)
 
(3,500
)
Proceeds from/(Repayments of) commercial paper, net
(5,977
)
 
(37
)
 
3,852

Other
(105
)
 
—

 
—

Cash used in financing activities
(90,976
)

(87,876
)

(17,974
)
Increase/(Decrease) in cash, cash equivalents and restricted cash
24,311

 
5,624

 
(195
)
Cash, cash equivalents and restricted cash, ending balances
$
50,224


$
25,913


$
20,289

Supplemental cash flow disclosure:
 
 
 
 
 
Cash paid for income taxes, net
$
15,263

 
$
10,417

 
$
11,591

Cash paid for interest
$
3,423

 
$
3,022

 
$
2,092

See accompanying Notes to Consolidated Financial Statements.

Apple Inc. | 2019 Form 10-K | 33

Apple Inc.
Notes to Consolidated Financial Statements
Note 1 – Summary of Significant Accounting Policies
Basis of Presentation and Preparation
The accompanying consolidated financial statements include the accounts of Apple Inc. and its wholly owned subsidiaries (collectively “Apple” or the “Company”). Intercompany accounts and transactions have been eliminated. In the opinion of the Company’s management, the consolidated financial statements reflect all adjustments, which are normal and recurring in nature, necessary for fair financial statement presentation. The preparation of these consolidated financial statements and accompanying notes in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported. Actual results could differ materially from those estimates. Certain prior period amounts in the consolidated financial statements and accompanying notes have been reclassified to conform to the current period’s presentation.
The Company’s fiscal year is the 52- or 53-week period that ends on the last Saturday of September. The Company’s fiscal years 2019 and 2018 spanned 52 weeks each, whereas fiscal year 2017 included 53 weeks. A 14th week was included in the first fiscal quarter of 2017, as is done every five or six years, to realign the Company’s fiscal quarters with calendar quarters. Unless otherwise stated, references to particular years, quarters, months and periods refer to the Company’s fiscal years ended in September and the associated quarters, months and periods of those fiscal years.
Recently Adopted Accounting Pronouncements
Revenue Recognition
In the first quarter of 2019, the Company adopted the Financial Accounting Standards Board’s (the “FASB”) Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASU 2014-09”), and additional ASUs issued to clarify the guidance in ASU 2014-09 (collectively the “new revenue standard”), which amends the existing accounting standards for revenue recognition. The Company adopted the new revenue standard utilizing the full retrospective transition method. The Company did not restate total net sales in the prior periods presented, as the adoption of the new revenue standard did not have a material impact on previously reported amounts.
Additionally, beginning in the first quarter of 2019, the Company classified the amortization of the deferred value of Maps, Siri and free iCloud services, which are bundled in the sales price of iPhone, Mac, iPad and certain other products, in Services net sales. Historically, the Company classified the amortization of these amounts in Products net sales consistent with its management reporting framework. As a result, Products and Services net sales for 2018 and 2017 were reclassified to conform to the 2019 presentation.
Financial Instruments
In the first quarter of 2019, the Company adopted FASB ASU No. 2016-01, Financial Instruments – Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities (“ASU 2016-01”), which updates certain aspects of the recognition, measurement, presentation and disclosure of financial instruments. The adoption of ASU 2016-01 did not have a material impact on the Company’s consolidated financial statements.
Income Taxes
In the first quarter of 2019, the Company adopted FASB ASU No. 2016-16, Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory (“ASU 2016-16”), which requires the recognition of the income tax consequences of an intra-entity transfer of an asset, other than inventory, when the transfer occurs. The Company adopted ASU 2016-16 utilizing the modified retrospective transition method. Upon adoption, the Company recorded $2.7 billion of net deferred tax assets, reduced other non-current assets by $128 million, and increased retained earnings by $2.6 billion on its Consolidated Balance Sheet. The Company will recognize incremental deferred income tax expense as these net deferred tax assets are utilized.
Restricted Cash
In the first quarter of 2019, the Company adopted FASB ASU No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash (“ASU 2016-18”), which enhances and clarifies the guidance on the classification and presentation of restricted cash in the statement of cash flows and requires additional disclosures about restricted cash balances.
Advertising Costs
Advertising costs are expensed as incurred and included in selling, general and administrative expenses.

Apple Inc. | 2019 Form 10-K | 34

Share-Based Compensation
The Company generally measures share-based compensation based on the closing price of the Company’s common stock on the date of grant, and recognizes expense on a straight-line basis for its estimate of equity awards that will ultimately vest. Further information regarding share-based compensation can be found in Note 9, “Benefit Plans.”
Earnings Per Share
The following table shows the computation of basic and diluted earnings per share for 2019, 2018 and 2017 (net income in millions and shares in thousands):
 
2019
 
2018
 
2017
Numerator:
 
 
 
 
 
Net income
$
55,256

 
$
59,531

 
$
48,351

 
 
 
 
 
 
Denominator:
 
 
 
 
 
Weighted-average basic shares outstanding
4,617,834

 
4,955,377

 
5,217,242

Effect of dilutive securities
31,079

 
44,732

 
34,450

Weighted-average diluted shares
4,648,913

 
5,000,109


5,251,692

 
 
 
 
 
 
Basic earnings per share
$
11.97

 
$
12.01

 
$
9.27

Diluted earnings per share
$
11.89

 
$
11.91

 
$
9.21



The Company applies the treasury stock method to determine the dilutive effect of potentially dilutive securities. Potentially dilutive securities representing 15.5 million shares of common stock were excluded from the computation of diluted earnings per share for 2019 because their effect would have been antidilutive.
Cash Equivalents and Marketable Securities
All highly liquid investments with maturities of three months or less at the date of purchase are classified as cash equivalents.
The Company’s investments in marketable debt securities have been classified and accounted for as available-for-sale. The Company classifies its marketable debt securities as either short-term or long-term based on each instrument’s underlying contractual maturity date. Unrealized gains and losses on marketable debt securities classified as available-for-sale are recognized in other comprehensive income/(loss) (“OCI”).
The Company’s investments in marketable equity securities are classified based on the nature of the securities and their availability for use in current operations. The Company’s marketable equity securities are measured at fair value with gains and losses recognized in other income/(expense), net (“OI&E”).
The cost of securities sold is determined using the specific identification method.
Inventories
Inventories are measured using the first-in, first-out method.
Property, Plant and Equipment
Depreciation on property, plant and equipment is recognized on a straight-line basis over the estimated useful lives of the assets, which for buildings is the lesser of 30 years or the remaining life of the underlying building; between one and five years for machinery and equipment, including product tooling and manufacturing process equipment; and the shorter of lease term or useful life for leasehold improvements. Capitalized costs related to internal-use software are amortized on a straight-line basis over the estimated useful lives of the assets, which range from three to five years. Depreciation and amortization expense on property and equipment was $11.3 billion, $9.3 billion and $8.2 billion during 2019, 2018 and 2017, respectively.
Non-cash investing activities involving property, plant and equipment resulted in a net increase/(decrease) to accounts payable and other current liabilities of $(2.9) billion and $3.4 billion during 2019 and 2018, respectively.

Apple Inc. | 2019 Form 10-K | 35

Non-Marketable Securities
The Company has elected to apply the measurement alternative to equity securities without readily determinable fair values. As such, the Company’s non-marketable equity securities are measured at cost, less any impairment, and are adjusted for changes in fair value resulting from observable transactions for identical or similar investments of the same issuer. Gains and losses on non-marketable equity securities are recognized in OI&E.
Restricted Cash and Restricted Marketable Securities
The Company considers cash and marketable securities to be restricted when withdrawal or general use is legally restricted. The Company records restricted cash as other assets in the Consolidated Balance Sheets, and determines current or non-current classification based on the expected duration of the restriction. The Company records restricted marketable securities as current or non-current marketable securities in the Consolidated Balance Sheets based on the classification of the underlying securities.
Fair Value Measurements
The fair values of the Company’s money market funds and certain marketable equity securities are based on quoted prices in active markets for identical assets. The valuation techniques used to measure the fair value of the Company’s debt instruments and all other financial instruments, which generally have counterparties with high credit ratings, are based on quoted market prices or model-driven valuations using significant inputs derived from or corroborated by observable market data.
Note 2 – Revenue Recognition
Net sales consist of revenue from the sale of iPhone, Mac, iPad, Services and other products. The Company recognizes revenue at the amount to which it expects to be entitled when control of the products or services is transferred to its customers. Control is generally transferred when the Company has a present right to payment and title and the significant risks and rewards of ownership of products or services are transferred to its customers. For most of the Company’s Products net sales, control transfers when products are shipped. For the Company’s Services net sales, control transfers over time as services are delivered. Payment for Products and Services net sales is collected within a short period following transfer of control or commencement of delivery of services, as applicable.
The Company records reductions to Products net sales related to future product returns, price protection and other customer incentive programs based on the Company’s expectations and historical experience.
For arrangements with multiple performance obligations, which represent promises within an arrangement that are capable of being distinct, the Company allocates revenue to all distinct performance obligations based on their relative stand-alone selling prices (“SSPs”). When available, the Company uses observable prices to determine SSPs. When observable prices are not available, SSPs are established that reflect the Company’s best estimates of what the selling prices of the performance obligations would be if they were sold regularly on a stand-alone basis. The Company’s process for estimating SSPs without observable prices considers multiple factors that may vary depending upon the unique facts and circumstances related to each performance obligation including, where applicable, prices charged by the Company for similar offerings, market trends in the pricing for similar offerings, product-specific business objectives and the estimated cost to provide the performance obligation.
The Company has identified up to three performance obligations regularly included in arrangements involving the sale of iPhone, Mac, iPad and certain other products. The first performance obligation, which represents the substantial portion of the allocated sales price, is the hardware and bundled software delivered at the time of sale. The second performance obligation is the right to receive certain product-related bundled services, which include iCloud, Siri and Maps. The third performance obligation is the right to receive, on a when-and-if-available basis, future unspecified software upgrades relating to the software bundled with each device. The Company allocates revenue and any related discounts to these performance obligations based on their relative SSPs. Because the Company lacks observable prices for the undelivered performance obligations, the allocation of revenue is based on the Company’s estimated SSPs. Revenue allocated to the delivered hardware and bundled software is recognized when control has transferred to the customer, which generally occurs when the product is shipped. Revenue allocated to the product-related bundled services and unspecified software upgrade rights is deferred and recognized on a straight-line basis over the estimated period they are expected to be provided. Cost of sales related to delivered hardware and bundled software, including estimated warranty costs, are recognized at the time of sale. Costs incurred to provide product-related bundled services and unspecified software upgrade rights are recognized as cost of sales as incurred.
For certain long-term service arrangements, the Company has performance obligations for services it has not yet delivered. For these arrangements, the Company does not have a right to bill for the undelivered services. The Company has determined that any unbilled consideration relates entirely to the value of the undelivered services. Accordingly, the Company has not recognized revenue, and has elected not to disclose amounts, related to these undelivered services.

Apple Inc. | 2019 Form 10-K | 36

For the sale of third-party products where the Company obtains control of the product before transferring it to the customer, the Company recognizes revenue based on the gross amount billed to customers. The Company considers multiple factors when determining whether it obtains control of third-party products including, but not limited to, evaluating if it can establish the price of the product, retains inventory risk for tangible products or has the responsibility for ensuring acceptability of the product. For third-party applications sold through the App Store, Mac App Store, TV App Store and Watch App Store and certain digital content sold through the Company’s other digital content stores, the Company does not obtain control of the product before transferring it to the customer. Therefore, the Company accounts for such sales on a net basis by recognizing in Services net sales only the commission it retains.
The Company has elected to record revenue net of taxes collected from customers that are remitted to governmental authorities, with the collected taxes recorded within other current liabilities until remitted to the relevant government authority.
Deferred Revenue
As of September 28, 2019 and September 29, 2018, the Company had total deferred revenue of $8.1 billion and $8.8 billion, respectively. As of September 28, 2019, the Company expects 68% of total deferred revenue to be realized in less than a year, 25% within one-to-two years, 6% within two-to-three years and 1% in greater than three years.
Disaggregated Revenue
Net sales disaggregated by significant products and services for 2019, 2018 and 2017 were as follows (in millions):
 
2019
 
2018
 
2017
iPhone (1)
$
142,381

 
$
164,888

 
$
139,337

Mac (1)
25,740

 
25,198

 
25,569

iPad (1)
21,280

 
18,380

 
18,802

Wearables, Home and Accessories (1)(2)
24,482

 
17,381

 
12,826

Services (3)
46,291

 
39,748

 
32,700

Total net sales (4)
$
260,174

 
$
265,595

 
$
229,234

(1)
Products net sales include amortization of the deferred value of unspecified software upgrade rights, which are bundled in the sales price of the respective product.
(2)
Wearables, Home and Accessories net sales include sales of AirPods, Apple TV, Apple Watch, Beats products, HomePod, iPod touch and Apple-branded and third-party accessories.
(3)
Services net sales include sales from the Company’s digital content stores and streaming services, AppleCare, licensing and other services. Services net sales also include amortization of the deferred value of Maps, Siri and free iCloud services, which are bundled in the sales price of certain products.
(4)
Includes $5.9 billion of revenue recognized in 2019 that was included in deferred revenue as of September 29, 2018, $5.8 billion of revenue recognized in 2018 that was included in deferred revenue as of September 30, 2017, and $6.3 billion of revenue recognized in 2017 that was included in deferred revenue as of September 24, 2016.
The Company’s proportion of net sales by disaggregated revenue source was generally consistent for each reportable segment in Note 11, “Segment Information and Geographic Data” for 2019, 2018 and 2017.

Apple Inc. | 2019 Form 10-K | 37

Note 3 – Financial Instruments
Cash, Cash Equivalents and Marketable Securities
The following tables show the Company’s cash and marketable securities by significant investment category as of September 28, 2019 and September 29, 2018 (in millions):
 
2019
 
Adjusted
Cost
 
Unrealized
Gains
 
Unrealized
Losses
 
Fair
Value
 
Cash and
Cash
Equivalents
 
Short-Term
Marketable
Securities
 
Long-Term
Marketable
Securities
Cash
$
12,204

 
$
—

 
$
—

 
$
12,204

 
$
12,204

 
$
—

 
$
—

Level 1 (1):
 
 
 
 
 
 
 
 
 
 
 
 
 
Money market funds
15,897

 
—

 
—

 
15,897

 
15,897

 
—

 
—

Subtotal
15,897

 
—

 
—

 
15,897

 
15,897

 
—

 
—

Level 2 (2):
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. Treasury securities
30,293

 
33

 
(62
)
 
30,264

 
6,165

 
9,817

 
14,282

U.S. agency securities
9,767

 
1

 
(3
)
 
9,765

 
6,489

 
2,249

 
1,027

Non-U.S. government securities
19,821

 
337

 
(50
)
 
20,108

 
749

 
3,168

 
16,191

Certificates of deposit and time deposits
4,041

 
—

 
—

 
4,041

 
2,024

 
1,922

 
95

Commercial paper
12,433

 
—

 
—

 
12,433

 
5,193

 
7,240

 
—

Corporate debt securities
85,383

 
756

 
(92
)
 
86,047

 
123

 
26,127

 
59,797

Municipal securities
958

 
8

 
(1
)
 
965

 
—

 
68

 
897

Mortgage- and asset-backed securities
14,180

 
67

 
(73
)
 
14,174

 
—

 
1,122

 
13,052

Subtotal
176,876

 
1,202

 
(281
)
 
177,797

 
20,743

 
51,713

 
105,341

Total (3)
$
204,977

 
$
1,202

 
$
(281
)
 
$
205,898

 
$
48,844

 
$
51,713

 
$
105,341

 
2018
 
Adjusted
Cost
 
Unrealized
Gains
 
Unrealized
Losses
 
Fair
Value
 
Cash and
Cash
Equivalents
 
Short-Term
Marketable
Securities
 
Long-Term
Marketable
Securities
Cash
$
11,575

 
$
—

 
$
—

 
$
11,575

 
$
11,575

 
$
—

 
$
—

Level 1 (1):
 
 
 
 
 
 
 
 
 
 
 
 
 
Money market funds
8,083

 
—

 
—

 
8,083

 
8,083

 
—

 
—

Mutual funds
799

 
—

 
(116
)
 
683

 
—

 
683

 
—

Subtotal
8,882

 
—

 
(116
)
 
8,766

 
8,083

 
683

 
—

Level 2 (2):
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. Treasury securities
47,296

 
—

 
(1,202
)
 
46,094

 
1,613

 
7,606

 
36,875

U.S. agency securities
4,127

 
—

 
(48
)
 
4,079

 
1,732

 
360

 
1,987

Non-U.S. government securities
21,601

 
49

 
(250
)
 
21,400

 
—

 
3,355

 
18,045

Certificates of deposit and time deposits
3,074

 
—

 
—

 
3,074

 
1,247

 
1,330

 
497

Commercial paper
2,573

 
—

 
—

 
2,573

 
1,663

 
910

 
—

Corporate debt securities
123,001

 
152

 
(2,038
)
 
121,115

 
—

 
25,162

 
95,953

Municipal securities
946

 
—

 
(12
)
 
934

 
—

 
178

 
756

Mortgage- and asset-backed securities
18,105

 
8

 
(623
)
 
17,490

 
—

 
804

 
16,686

Subtotal
220,723

 
209

 
(4,173
)
 
216,759

 
6,255

 
39,705

 
170,799

Total (3)
$
241,180

 
$
209

 
$
(4,289
)
 
$
237,100

 
$
25,913

 
$
40,388

 
$
170,799


(1)
Level 1 fair value estimates are based on quoted prices in active markets for identical assets or liabilities.
(2)
Level 2 fair value estimates are based on observable inputs other than quoted prices in active markets for identical assets and liabilities, quoted prices for identical or similar assets or liabilities in inactive markets, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
(3)
As of September 28, 2019 and September 29, 2018, total cash, cash equivalents and marketable securities included $18.9 billion and $20.3 billion, respectively, that was restricted from general use, related to the State Aid Decision (refer to Note 5, “Income Taxes”) and other agreements.

Apple Inc. | 2019 Form 10-K | 38

The Company may sell certain of its marketable debt securities prior to their stated maturities for reasons including, but not limited to, managing liquidity, credit risk, duration and asset allocation. The maturities of the Company’s long-term marketable debt securities generally range from one to five years.
The following tables show information about the Company’s marketable securities that had been in a continuous unrealized loss position for less than 12 months and for 12 months or greater as of September 28, 2019 and September 29, 2018 (in millions):
 
2019
 
Continuous Unrealized Losses
 
Less than 12 Months
 
12 Months or Greater
 
Total
Fair value of marketable debt securities
$
28,151

 
$
28,167

 
$
56,318

Unrealized losses
$
(138
)
 
$
(143
)
 
$
(281
)
 
2018
 
Continuous Unrealized Losses
 
Less than 12 Months
 
12 Months or Greater
 
Total
Fair value of marketable securities
$
126,238

 
$
60,599

 
$
186,837

Unrealized losses
$
(2,400
)
 
$
(1,889
)
 
$
(4,289
)

The Company typically invests in highly rated securities, with the primary objective of minimizing the potential risk of principal loss. The Company’s investment policy generally requires securities to be investment grade and limits the amount of credit exposure to any one issuer. Fair values were determined for each individual security in the investment portfolio. When evaluating a marketable debt security for other-than-temporary impairment, the Company reviews factors such as the duration and extent to which the fair value of the security is less than its cost, the financial condition of the issuer and any changes thereto, and the Company’s intent to sell, or whether it will more likely than not be required to sell, the security before recovery of its amortized cost basis. As of September 28, 2019, the Company does not consider any of its marketable debt securities to be other-than-temporarily impaired.
Non-Marketable Securities
The Company holds non-marketable equity securities of certain privately held companies without readily determinable fair values. As of September 28, 2019, the Company’s non-marketable equity securities had a carrying value of $2.9 billion.
Restricted Cash
A reconciliation of the Company’s cash and cash equivalents in the Consolidated Balance Sheet to cash, cash equivalents and restricted cash in the Consolidated Statement of Cash Flows as of September 28, 2019 is as follows (in millions):
 
2019
Cash and cash equivalents
$
48,844

Restricted cash included in other current assets
23

Restricted cash included in other non-current assets
1,357

Cash, cash equivalents and restricted cash
$
50,224


The Company’s restricted cash primarily consisted of cash required to be on deposit under a contractual agreement with a bank to support the Company’s iPhone Upgrade Program.
Derivative Financial Instruments
The Company may use derivatives to partially offset its business exposure to foreign currency and interest rate risk on expected future cash flows, net investments in certain foreign subsidiaries, and certain existing assets and liabilities. However, the Company may choose not to hedge certain exposures for a variety of reasons including, but not limited to, accounting considerations or the prohibitive economic cost of hedging particular exposures. There can be no assurance the hedges will offset more than a portion of the financial impact resulting from movements in foreign currency exchange or interest rates.
To protect gross margins from fluctuations in foreign currency exchange rates, certain of the Company’s subsidiaries whose functional currency is the U.S. dollar may hedge a portion of forecasted foreign currency revenue, and subsidiaries whose functional currency is not the U.S. dollar may hedge a portion of forecasted inventory purchases not denominated in the subsidiaries’ functional currencies. The Company may enter into forward contracts, option contracts or other instruments to manage this risk and may designate these instruments as cash flow hedges. The Company generally hedges portions of its forecasted foreign currency exposure associated with revenue and inventory purchases, typically for up to 12 months.

Apple Inc. | 2019 Form 10-K | 39

To protect the net investment in a foreign operation from fluctuations in foreign currency exchange rates, the Company may enter into foreign currency forward and option contracts to offset a portion of the changes in the carrying amounts of these investments due to fluctuations in foreign currency exchange rates. In addition, the Company may use non-derivative financial instruments, such as its foreign currency–denominated debt, as hedges of its net investments in certain foreign subsidiaries. In both of these cases, the Company designates these instruments as net investment hedges.
To protect the Company’s foreign currency–denominated term debt or marketable securities from fluctuations in foreign currency exchange rates, the Company may enter into forward contracts, cross-currency swaps or other instruments. These instruments may offset a portion of the foreign currency remeasurement gains or losses, or changes in fair value. The Company may designate these instruments as either cash flow or fair value hedges. As of September 28, 2019, the Company’s hedged term debt– and marketable securities–related foreign currency transactions are expected to be recognized within 23 years.
The Company may also enter into non-designated foreign currency contracts to offset a portion of the foreign currency exchange gains and losses generated by the remeasurement of certain assets and liabilities denominated in non-functional currencies.
To protect the Company’s foreign currency–denominated term debt or marketable securities from fluctuations in interest rates, the Company may enter into interest rate swaps, options or other instruments. These instruments may offset a portion of the changes in interest income or expense, or changes in fair value. The Company designates these instruments as either cash flow or fair value hedges. As of September 28, 2019, the Company’s hedged interest rate transactions are expected to be recognized within 8 years.
Cash Flow Hedges
The effective portions of cash flow hedges are recorded in accumulated other comprehensive income/(loss) (“AOCI”) until the hedged item is recognized in earnings. Deferred gains and losses associated with cash flow hedges of foreign currency revenue are recognized as a component of net sales in the same period as the related revenue is recognized, and deferred gains and losses related to cash flow hedges of inventory purchases are recognized as a component of cost of sales in the same period as the related costs are recognized. Deferred gains and losses associated with cash flow hedges of interest income or expense are recognized in OI&E in the same period as the related income or expense is recognized. For options designated as cash flow hedges, changes in the time value are excluded from the assessment of hedge effectiveness. The ineffective portions and amounts excluded from the effectiveness testing of cash flow hedges are recognized in OI&E.
Derivative instruments designated as cash flow hedges must be de-designated as hedges when it is probable the forecasted hedged transaction will not occur in the initially identified time period or within a subsequent two-month time period. Deferred gains and losses in AOCI associated with such derivative instruments are reclassified into OI&E in the period of de-designation. Any subsequent changes in fair value of such derivative instruments are reflected in OI&E unless they are re-designated as hedges of other transactions.
Net Investment Hedges
The effective portions of net investment hedges are recorded in OCI as a part of the cumulative translation adjustment. The ineffective portions and amounts excluded from the effectiveness testing of net investment hedges are recognized in OI&E. For foreign exchange forward contracts designated as net investment hedges, the Company excludes changes in fair value relating to changes in the forward carry component from its assessment of hedge effectiveness. Accordingly, any gains or losses related to this forward carry component are recognized in earnings in the current period.
Fair Value Hedges
Gains and losses related to changes in fair value hedges are recognized in earnings along with a corresponding loss or gain related to the change in value of the underlying hedged item in the same line in the Consolidated Statements of Operations. For foreign exchange forward contracts designated as fair value hedges, the Company excludes changes in fair value relating to changes in the forward carry component from its assessment of hedge effectiveness. The amount excluded from the effectiveness testing of fair value hedges was a gain of $777 million for 2019, and was recognized in OI&E.
Non-Designated Derivatives
Derivatives that are not designated as hedging instruments are adjusted to fair value through earnings in the financial statement line item to which the derivative relates.

Apple Inc. | 2019 Form 10-K | 40

The Company records all derivatives in the Consolidated Balance Sheets at fair value. The Company’s accounting treatment for these derivative instruments is based on its hedge designation. The following tables show the Company’s derivative instruments at gross fair value as of September 28, 2019 and September 29, 2018 (in millions):
 
2019
 
Fair Value of
Derivatives Designated
as Hedge Instruments
 
Fair Value of
Derivatives Not Designated
as Hedge Instruments
 
Total
Fair Value
Derivative assets (1):
 
 
 
 
 
Foreign exchange contracts
$
1,798

 
$
323

 
$
2,121

Interest rate contracts
$
685

 
$
—

 
$
685

 
 
 
 
 
 
Derivative liabilities (2):
 
 
 
 
 
Foreign exchange contracts
$
1,341

 
$
160

 
$
1,501

Interest rate contracts
$
105

 
$
—

 
$
105

 
2018
 
Fair Value of
Derivatives Designated
as Hedge Instruments
 
Fair Value of
Derivatives Not Designated
as Hedge Instruments
 
Total
Fair Value
Derivative assets (1):
 
 
 
 
 
Foreign exchange contracts
$
1,015

 
$
259

 
$
1,274

 
 
 
 
 
 
Derivative liabilities (2):
 
 
 
 
 
Foreign exchange contracts
$
543

 
$
137

 
$
680

Interest rate contracts
$
1,456

 
$
—

 
$
1,456

 
(1)
The fair value of derivative assets is measured using Level 2 fair value inputs and is recorded as other current assets and other non-current assets in the Consolidated Balance Sheets.
(2)
The fair value of derivative liabilities is measured using Level 2 fair value inputs and is recorded as other current liabilities and other non-current liabilities in the Consolidated Balance Sheets.
The Company classifies cash flows related to derivative financial instruments as operating activities in its Consolidated Statements of Cash Flows.

Apple Inc. | 2019 Form 10-K | 41

The following table shows the pre-tax gains and losses of the Company’s derivative and non-derivative instruments designated as cash flow, net investment and fair value hedges in OCI and the Consolidated Statements of Operations for 2019, 2018 and 2017 (in millions):
 
2019
 
2018
 
2017
Gains/(Losses) recognized in OCI – effective portion:
 
 
 
 
 
Cash flow hedges:
 
 
 
 
 
Foreign exchange contracts
$
(959
)
 
$
682

 
$
1,797

Interest rate contracts
—

 
1

 
7

Total
$
(959
)

$
683


$
1,804

 
 
 
 
 
 
Net investment hedges:
 
 
 
 
 
Foreign currency debt
$
(58
)
 
$
4

 
$
67

 
 
 
 
 
 
Gains/(Losses) reclassified from AOCI into net income – effective portion:
 
 
 
 
 
Cash flow hedges:
 
 
 
 
 
Foreign exchange contracts
$
(116
)
 
$
(482
)
 
$
1,958

Interest rate contracts
(7
)
 
1

 
(2
)
Total
$
(123
)

$
(481
)

$
1,956

 
 
 
 
 
 
Gains/(Losses) on derivative instruments:
 
 
 
 
 
Fair value hedges:
 
 
 
 
 
Foreign exchange contracts
$
1,020

 
$
(168
)
 
$
—

Interest rate contracts
2,068

 
(1,363
)
 
(810
)
Total
$
3,088

 
$
(1,531
)
 
$
(810
)
 
 
 
 
 
 
Gains/(Losses) related to hedged items:
 
 
 
 
 
Fair value hedges:
 
 
 
 
 
Marketable securities
$
(1,018
)
 
$
167

 
$
—

Fixed-rate debt
(2,068
)
 
1,363

 
810

Total
$
(3,086
)
 
$
1,530

 
$
810


The following table shows the notional amounts of the Company’s outstanding derivative instruments and credit risk amounts associated with outstanding or unsettled derivative instruments as of September 28, 2019 and September 29, 2018 (in millions):
 
2019
 
2018
 
Notional
Amount
 
Credit Risk
Amount
 
Notional
Amount
 
Credit Risk
Amount
Instruments designated as accounting hedges:
 
 
 
 
 
 
 
Foreign exchange contracts
$
61,795

 
$
1,798

 
$
65,368

 
$
1,015

Interest rate contracts
$
31,250

 
$
685

 
$
33,250

 
$
—

 
 
 
 
 
 
 
 
Instruments not designated as accounting hedges:
 
 
 
 
 
 
 
Foreign exchange contracts
$
76,868

 
$
323

 
$
63,062

 
$
259


The notional amounts for outstanding derivative instruments provide one measure of the transaction volume outstanding and do not represent the amount of the Company’s exposure to credit or market loss. The credit risk amounts represent the Company’s gross exposure to potential accounting loss on derivative instruments that are outstanding or unsettled if all counterparties failed to perform according to the terms of the contract, based on then-current currency or interest rates at each respective date. The Company’s exposure to credit loss and market risk will vary over time as currency and interest rates change. Although the table above reflects the notional and credit risk amounts of the Company’s derivative instruments, it does not reflect the gains or losses associated with the exposures and transactions that the instruments are intended to hedge. The amounts ultimately realized upon settlement of these financial instruments, together with the gains and losses on the underlying exposures, will depend on actual market conditions during the remaining life of the instruments.

Apple Inc. | 2019 Form 10-K | 42

The Company generally enters into master netting arrangements, which are designed to reduce credit risk by permitting net settlement of transactions with the same counterparty. To further limit credit risk, the Company generally enters into collateral security arrangements that provide for collateral to be received or posted when the net fair value of certain financial instruments fluctuates from contractually established thresholds. The Company presents its derivative assets and derivative liabilities at their gross fair values in its Consolidated Balance Sheets. As of September 28, 2019, the net cash collateral received by the Company related to derivative instruments under its collateral security arrangements was $1.6 billion, which was recorded as other current liabilities in the Consolidated Balance Sheet. As of September 29, 2018, the net cash collateral posted by the Company related to derivative instruments under its collateral security arrangements was $1.0 billion, which was recorded as other current assets in the Consolidated Balance Sheet.
Under master netting arrangements with the respective counterparties to the Company’s derivative contracts, the Company is allowed to net settle transactions with a single net amount payable by one party to the other. As of September 28, 2019 and September 29, 2018, the potential effects of these rights of set-off associated with the Company’s derivative contracts, including the effects of collateral, would be a reduction to both derivative assets and derivative liabilities of $2.7 billion and $2.1 billion, respectively, resulting in a net derivative liability of $407 million and a net derivative asset of $138 million, respectively.
Accounts Receivable
Trade Receivables
The Company has considerable trade receivables outstanding with its third-party cellular network carriers, wholesalers, retailers, resellers, small and mid-sized businesses and education, enterprise and government customers. The Company generally does not require collateral from its customers; however, the Company will require collateral or third-party credit support in certain instances to limit credit risk. In addition, when possible, the Company attempts to limit credit risk on trade receivables with credit insurance for certain customers or by requiring third-party financing, loans or leases to support credit exposure. These credit-financing arrangements are directly between the third-party financing company and the end customer. As such, the Company generally does not assume any recourse or credit risk sharing related to any of these arrangements.
As of September 28, 2019, the Company had no customers that individually represented 10% or more of total trade receivables. As of September 29, 2018, the Company had one customer that represented 10% or more of total trade receivables, which accounted for 10%. The Company’s cellular network carriers accounted for 51% and 59% of total trade receivables as of September 28, 2019 and September 29, 2018, respectively.
Vendor Non-Trade Receivables
The Company has non-trade receivables from certain of its manufacturing vendors resulting from the sale of components to these vendors who manufacture sub-assemblies or assemble final products for the Company. The Company purchases these components directly from suppliers. As of September 28, 2019, the Company had two vendors that individually represented 10% or more of total vendor non-trade receivables, which accounted for 59% and 14%. As of September 29, 2018, the Company had two vendors that individually represented 10% or more of total vendor non-trade receivables, which accounted for 62% and 12%.
Note 4 – Consolidated Financial Statement Details
The following tables show the Company’s consolidated financial statement details as of September 28, 2019 and September 29, 2018 (in millions):
Property, Plant and Equipment, Net
 
2019
 
2018
Land and buildings
$
17,085

 
$
16,216

Machinery, equipment and internal-use software
69,797

 
65,982

Leasehold improvements
9,075

 
8,205

Gross property, plant and equipment
95,957

 
90,403

Accumulated depreciation and amortization
(58,579
)
 
(49,099
)
Total property, plant and equipment, net
$
37,378

 
$
41,304



Apple Inc. | 2019 Form 10-K | 43

Other Non-Current Liabilities
 
2019
 
2018
Long-term taxes payable
$
29,545

 
$
33,589

Other non-current liabilities
20,958

 
15,325

Total other non-current liabilities
$
50,503

 
$
48,914


Other Income/(Expense), Net
The following table shows the detail of OI&E for 2019, 2018 and 2017 (in millions):
 
2019
 
2018
 
2017
Interest and dividend income
$
4,961

 
$
5,686

 
$
5,201

Interest expense
(3,576
)
 
(3,240
)
 
(2,323
)
Other income/(expense), net
422

 
(441
)
 
(133
)
Total other income/(expense), net
$
1,807

 
$
2,005

 
$
2,745


Note 5 – Income Taxes
U.S. Tax Cuts and Jobs Act
On December 22, 2017, the U.S. enacted the Tax Cuts and Jobs Act (the “Act”), which significantly changed U.S. tax law. The Act lowered the Company’s U.S. statutory federal income tax rate from 35% to 21% effective January 1, 2018, while also imposing a deemed repatriation tax on previously deferred foreign income. The Act also created a new minimum tax on certain foreign earnings, for which the Company has elected to record certain deferred tax assets and liabilities. The Company completed its accounting for the income tax effects of the Act during 2019, in accordance with the U.S. Securities and Exchange Commission Staff Accounting Bulletin No. 118.
Provision for Income Taxes and Effective Tax Rate
The provision for income taxes for 2019, 2018 and 2017, consisted of the following (in millions):
 
2019
 
2018
 
2017
Federal:
 
 
 
 
 
Current
$
6,384

 
$
41,425

 
$
7,842

Deferred
(2,939
)
 
(33,819
)
 
5,980

Total
3,445


7,606


13,822

State:
 
 
 
 
 
Current
475

 
551

 
259

Deferred
(67
)
 
48

 
2

Total
408


599


261

Foreign:
 
 
 
 
 
Current
3,962

 
3,986

 
1,671

Deferred
2,666

 
1,181

 
(16
)
Total
6,628


5,167


1,655

Provision for income taxes
$
10,481


$
13,372


$
15,738


The foreign provision for income taxes is based on foreign pre-tax earnings of $44.3 billion, $48.0 billion and $44.7 billion in 2019, 2018 and 2017, respectively.

Apple Inc. | 2019 Form 10-K | 44

A reconciliation of the provision for income taxes, with the amount computed by applying the statutory federal income tax rate (21% in 2019; 24.5% in 2018; 35% in 2017) to income before provision for income taxes for 2019, 2018 and 2017, is as follows (dollars in millions):
 
2019
 
2018
 
2017
Computed expected tax
$
13,805

 
$
17,890

 
$
22,431

State taxes, net of federal effect
423

 
271

 
185

Impacts of the Act
—

 
1,515

 
—

Earnings of foreign subsidiaries
(2,625
)
 
(5,606
)
 
(6,135
)
Research and development credit, net
(548
)
 
(560
)
 
(678
)
Excess tax benefits from equity awards
(639
)
 
(675
)
 
—

Other
65

 
537

 
(65
)
Provision for income taxes
$
10,481


$
13,372


$
15,738

Effective tax rate
15.9
%
 
18.3
%
 
24.6
%

The Company’s income taxes payable have been reduced by the tax benefits from employee stock plan awards. For restricted stock units (“RSUs”), the Company receives an income tax benefit upon the award’s vesting equal to the tax effect of the underlying stock’s fair market value. Prior to 2018, the Company reflected net excess tax benefits from equity awards as increases to additional paid-in capital, which amounted to $620 million in 2017.
Deferred Tax Assets and Liabilities
As of September 28, 2019 and September 29, 2018, the significant components of the Company’s deferred tax assets and liabilities were (in millions):
 
2019
 
2018
Deferred tax assets:
 
 
 
Amortization and depreciation
$
11,433

 
$
137

Accrued liabilities and other reserves
5,389

 
3,151

Deferred revenue
1,372

 
1,141

Share-based compensation
749

 
513

Unrealized losses
—

 
871

Other
697

 
797

Total deferred tax assets, net
19,640

 
6,610

Deferred tax liabilities:
 
 
 
Minimum tax on foreign earnings
10,809

 
—

Earnings of foreign subsidiaries
330

 
275

Other
456

 
501

Total deferred tax liabilities
11,595

 
776

Net deferred tax assets/(liabilities)
$
8,045


$
5,834


Deferred tax assets and liabilities reflect the effects of tax credits and the future income tax effects of temporary differences between the consolidated financial statement carrying amounts of existing assets and liabilities and their respective tax bases, and are measured using enacted tax rates that apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.

Apple Inc. | 2019 Form 10-K | 45

Uncertain Tax Positions
As of September 28, 2019, the total amount of gross unrecognized tax benefits was $15.6 billion, of which $8.6 billion, if recognized, would impact the Company’s effective tax rate. As of September 29, 2018, the total amount of gross unrecognized tax benefits was $9.7 billion, of which $7.4 billion, if recognized, would have impacted the Company’s effective tax rate.
The aggregate change in the balance of gross unrecognized tax benefits, which excludes interest and penalties, for 2019, 2018 and 2017, is as follows (in millions):
 
2019
 
2018
 
2017
Beginning balances
$
9,694

 
$
8,407

 
$
7,724

Increases related to tax positions taken during a prior year
5,845

 
2,431

 
333

Decreases related to tax positions taken during a prior year
(686
)
 
(2,212
)
 
(952
)
Increases related to tax positions taken during the current year
1,697

 
1,824

 
1,880

Decreases related to settlements with taxing authorities
(852
)
 
(756
)
 
(539
)
Decreases related to expiration of the statute of limitations
(79
)
 
—

 
(39
)
Ending balances
$
15,619

 
$
9,694

 
$
8,407


The Company is subject to taxation and files income tax returns in the U.S. federal jurisdiction and many state and foreign jurisdictions. The U.S. Internal Revenue Service (the “IRS”) concluded its review of the years 2013 through 2015 in 2018, and all years before 2016 are closed. Tax years after 2014 remain open in certain major foreign jurisdictions and are subject to examination by the taxing authorities. The Company believes that an adequate provision has been made for any adjustments that may result from tax examinations. However, the outcome of tax audits cannot be predicted with certainty. If any issues addressed in the Company’s tax audits are resolved in a manner inconsistent with its expectations, the Company could be required to adjust its provision for income taxes in the period such resolution occurs. Although the timing of resolution and/or closure of audits is not certain, the Company believes it is reasonably possible that its gross unrecognized tax benefits could decrease in the next 12 months by as much as $2.0 billion.
Interest and Penalties
The Company includes interest and penalties related to income tax matters within the provision for income taxes. As of September 28, 2019 and September 29, 2018, the total amount of gross interest and penalties accrued was $1.3 billion and $1.4 billion, respectively. The Company recognized interest and penalty expense in 2019, 2018 and 2017 of $73 million, $489 million and $238 million, respectively.
European Commission State Aid Decision
On August 30, 2016, the European Commission announced its decision that Ireland granted state aid to the Company by providing tax opinions in 1991 and 2007 concerning the tax allocation of profits of the Irish branches of two subsidiaries of the Company (the “State Aid Decision”). The State Aid Decision ordered Ireland to calculate and recover additional taxes from the Company for the period June 2003 through December 2014. The recovery amount was calculated to be €13.1 billion, plus interest of €1.2 billion. During the fourth quarter of 2019, the Irish Minister for Finance approved the Company’s request to reduce the recovery amount by €190 million due to taxes paid to other countries, resulting in an adjusted recovery amount of €12.9 billion as of September 28, 2019. Irish legislative changes, effective as of January 2015, eliminated the application of the tax opinions from that date forward. The Company believes the State Aid Decision to be without merit and appealed to the General Court of the Court of Justice of the European Union. Ireland has also appealed the State Aid Decision. The Company believes that any incremental Irish corporate income taxes potentially due related to the State Aid Decision would be creditable against U.S. taxes, subject to any foreign tax credit limitations in the Act. As of September 28, 2019, the entire adjusted recovery amount plus interest was funded into escrow, where it will remain restricted from general use pending the conclusion of all appeals. Refer to the Cash, Cash Equivalents and Marketable Securities section of Note 3, “Financial Instruments” for more information.

Apple Inc. | 2019 Form 10-K | 46

Note 6 – Debt
Commercial Paper
The Company issues unsecured short-term promissory notes (“Commercial Paper”) pursuant to a commercial paper program. The Company uses net proceeds from the commercial paper program for general corporate purposes, including dividends and share repurchases. As of September 28, 2019 and September 29, 2018, the Company had $6.0 billion and $12.0 billion of Commercial Paper outstanding, respectively, with maturities generally less than nine months. The weighted-average interest rate of the Company’s Commercial Paper was 2.24% and 2.18% as of September 28, 2019 and September 29, 2018, respectively. The following table provides a summary of cash flows associated with the issuance and maturities of Commercial Paper for 2019, 2018 and 2017 (in millions):
 
2019
 
2018
 
2017
Maturities 90 days or less:
 
 
 
 
 
Proceeds from/(Repayments of) commercial paper, net
$
(3,248
)
 
$
1,044

 
$
(1,782
)
 
 
 
 
 
 
Maturities greater than 90 days:
 
 
 
 
 
Proceeds from commercial paper
13,874

 
14,555

 
17,932

Repayments of commercial paper
(16,603
)
 
(15,636
)
 
(12,298
)
Proceeds from/(Repayments of) commercial paper, net
(2,729
)

(1,081
)
 
5,634

 
 
 
 
 
 
Total proceeds from/(repayments of) commercial paper, net
$
(5,977
)

$
(37
)
 
$
3,852


Term Debt
As of September 28, 2019, the Company had outstanding floating- and fixed-rate notes with varying maturities for an aggregate principal amount of $101.7 billion (collectively the “Notes”). The Notes are senior unsecured obligations and interest is payable in arrears. The following table provides a summary of the Company’s term debt as of September 28, 2019 and September 29, 2018:
 
Maturities
(calendar year)
 
2019
 
2018
 
Amount
(in millions)
 
Effective
Interest Rate
 
Amount
(in millions)
 
Effective
Interest Rate
2013–2018 debt issuances:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Floating-rate notes
2020
–
2022
 
$
4,250

 
 
2.25%
–
3.28
%
 
$
7,107

 
 
1.87%
–
3.44
%
Fixed-rate 0.350% – 4.650% notes
2019
–
2047
 
90,429

 
 
0.28%
–
4.78
%
 
97,086

 
 
0.28%
–
4.78
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2019 debt issuance:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Fixed-rate 1.700% – 2.950% notes
2022
–
2049
 
7,000

 
 
1.71%
–
2.99
%
 
—

 
 
 
 
—
%
Total term debt
 
 
 
 
101,679

 
 
 
 
 
 
104,193

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Unamortized premium/(discount) and issuance costs, net
 
 
 
 
(224
)
 
 
 
 
 
 
(218
)
 
 
 
 
 
Hedge accounting fair value adjustments
 
 
 
 
612

 
 
 
 
 
 
(1,456
)
 
 
 
 
 
Less: Current portion of term debt
 
 
 
 
(10,260
)
 
 
 
 
 
 
(8,784
)
 
 
 
 
 
Total non-current portion of term debt
 
 
 
 
$
91,807

 
 
 
 
 
 
$
93,735

 
 
 
 
 

To manage interest rate risk on certain of its U.S. dollar–denominated fixed- or floating-rate notes, the Company has entered into interest rate swaps to effectively convert the fixed interest rates to floating interest rates or the floating interest rates to fixed interest rates on a portion of these notes. Additionally, to manage foreign currency risk on certain of its foreign currency–denominated notes, the Company has entered into foreign currency swaps to effectively convert these notes to U.S. dollar–denominated notes.
A portion of the Company’s Japanese yen–denominated notes is designated as a hedge of the foreign currency exposure of the Company’s net investment in a foreign operation. As of September 28, 2019 and September 29, 2018, the carrying value of the debt designated as a net investment hedge was $1.0 billion and $811 million, respectively. For further discussion regarding the Company’s use of derivative instruments, refer to the Derivative Financial Instruments section of Note 3, “Financial Instruments.”
The effective interest rates for the Notes include the interest on the Notes, amortization of the discount or premium and, if applicable, adjustments related to hedging. The Company recognized $3.2 billion, $3.0 billion and $2.2 billion of interest cost on its term debt for 2019, 2018 and 2017, respectively.

Apple Inc. | 2019 Form 10-K | 47

The future principal payments for the Company’s Notes as of September 28, 2019 are as follows (in millions):
2020
$
10,270

2021
8,750

2022
9,528

2023
9,290

2024
10,039

Thereafter
53,802

Total term debt
$
101,679


As of September 28, 2019 and September 29, 2018, the fair value of the Company’s Notes, based on Level 2 inputs, was $107.5 billion and $103.2 billion, respectively.
Note 7 – Shareholders’ Equity
Share Repurchase Program
On April 30, 2019, the Company announced the Board of Directors increased the current share repurchase program authorization from $100 billion to $175 billion of the Company’s common stock, of which $96.1 billion had been utilized as of September 28, 2019. During 2019, the Company repurchased 345.2 million shares of its common stock for $67.1 billion, including 62.0 million shares delivered under a $12.0 billion accelerated share repurchase arrangement dated February 2019, which settled in August 2019. The Company’s share repurchase program does not obligate it to acquire any specific number of shares. Under this program, shares may be repurchased in privately negotiated and/or open market transactions, including under plans complying with Rule 10b5-1 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”).
Shares of Common Stock
The following table shows the changes in shares of common stock for 2019, 2018 and 2017 (in thousands):
 
2019
 
2018
 
2017
Common stock outstanding, beginning balances
4,754,986

 
5,126,201

 
5,336,166

Common stock repurchased
(345,205
)
 
(405,549
)
 
(246,496
)
Common stock issued, net of shares withheld for employee taxes
33,455

 
34,334

 
36,531

Common stock outstanding, ending balances
4,443,236

 
4,754,986

 
5,126,201


Note 8 – Comprehensive Income
The Company’s OCI consists of foreign currency translation adjustments from those subsidiaries not using the U.S. dollar as their functional currency, net deferred gains and losses on certain derivative instruments accounted for as cash flow hedges and unrealized gains and losses on marketable debt securities classified as available-for-sale.
The following table shows the pre-tax amounts reclassified from AOCI into the Consolidated Statements of Operations, and the associated financial statement line item, for 2019 and 2018 (in millions):
Comprehensive Income Components
 
Financial Statement Line Item
 
2019
 
2018
Unrealized (gains)/losses on derivative instruments:
 
 
 
 
 
 
Foreign exchange contracts
 
Total net sales
 
$
(206
)
 
$
214

 
 
Total cost of sales
 
(482
)
 
(70
)
 
 
Other income/(expense), net
 
784

 
344

Interest rate contracts
 
Other income/(expense), net
 
7

 
(2
)
 
 
 
 
103

 
486

Unrealized (gains)/losses on marketable securities
 
Other income/(expense), net
 
31

 
(20
)
Total amounts reclassified from AOCI
 
 
 
$
134

 
$
466



Apple Inc. | 2019 Form 10-K | 48

The following table shows the changes in AOCI by component for 2019 and 2018 (in millions):
 
Cumulative Foreign
Currency Translation
 
Unrealized Gains/Losses
on Derivative Instruments
 
Unrealized Gains/Losses
on Marketable Securities
 
Total
Balances as of September 30, 2017
$
(354
)
 
$
(124
)
 
$
328

 
$
(150
)
Other comprehensive income/(loss) before reclassifications
(524
)
 
672

 
(4,563
)
 
(4,415
)
Amounts reclassified from AOCI
—

 
486

 
(20
)
 
466

Tax effect
(1
)
 
(253
)
 
1,177

 
923

Other comprehensive income/(loss)
(525
)

905


(3,406
)

(3,026
)
Cumulative effect of change in accounting principle
(176
)
 
29

 
(131
)
 
(278
)
Balances as of September 29, 2018
(1,055
)
 
810

 
(3,209
)
 
(3,454
)
Other comprehensive income/(loss) before reclassifications
(421
)
 
(949
)
 
4,854

 
3,484

Amounts reclassified from AOCI
—

 
103

 
31

 
134

Tax effect
13

 
208

 
(1,058
)
 
(837
)
Other comprehensive income/(loss)
(408
)

(638
)

3,827


2,781

Cumulative effect of change in accounting principle (1)
—

 
—

 
89

 
89

Balances as of September 28, 2019
$
(1,463
)

$
172


$
707


$
(584
)

(1)
Refer to Note 1, “Summary of Significant Accounting Policies” for more information on the Company’s adoption of ASU 2016-01 in 2019.
Note 9 – Benefit Plans
2014 Employee Stock Plan
In the second quarter of 2014, shareholders approved the 2014 Employee Stock Plan (the “2014 Plan”) and terminated the Company’s authority to grant new awards under the 2003 Employee Stock Plan (the “2003 Plan”). The 2014 Plan provides for broad-based equity grants to employees, including executive officers, and permits the granting of RSUs, stock grants, performance-based awards, stock options and stock appreciation rights, as well as cash bonus awards. RSUs granted under the 2014 Plan generally vest over four years, based on continued employment, and are settled upon vesting in shares of the Company’s common stock on a one-for-one basis. RSUs granted under the 2014 Plan reduce the number of shares available for grant under the plan by a factor of two times the number of RSUs granted. RSUs canceled and shares withheld to satisfy tax withholding obligations increase the number of shares available for grant under the 2014 Plan utilizing a factor of two times the number of RSUs canceled or shares withheld. Currently, all RSUs granted under the 2014 Plan have dividend equivalent rights (“DERs”), which entitle holders of RSUs to the same dividend value per share as holders of common stock. DERs are subject to the same vesting and other terms and conditions as the corresponding unvested RSUs. DERs are accumulated and paid when the underlying shares vest. Upon approval of the 2014 Plan, the Company reserved 385 million shares plus the number of shares remaining that were reserved but not issued under the 2003 Plan. Shares subject to outstanding awards under the 2003 Plan that expire, are canceled or otherwise terminate, or are withheld to satisfy tax withholding obligations for RSUs, will also be available for awards under the 2014 Plan. As of September 28, 2019, approximately 246.4 million shares were reserved for future issuance under the 2014 Plan.
Apple Inc. Non-Employee Director Stock Plan
The Apple Inc. Non-Employee Director Stock Plan (the “Director Plan”) is a shareholder-approved plan that (i) permits the Company to grant awards of RSUs or stock options to the Company’s non-employee directors, (ii) provides for automatic initial grants of RSUs upon a non-employee director joining the Board of Directors and automatic annual grants of RSUs at each annual meeting of shareholders, and (iii) permits the Board of Directors to prospectively change the value and relative mixture of stock options and RSUs for the initial and annual award grants and the methodology for determining the number of shares of the Company’s common stock subject to these grants, in each case within the limits set forth in the Director Plan and without further shareholder approval. RSUs granted under the Director Plan reduce the number of shares available for grant under the plan by a factor of two times the number of RSUs granted. The Director Plan expires on November 12, 2027. All RSUs granted under the Director Plan are entitled to DERs. DERs are subject to the same vesting and other terms and conditions as the corresponding unvested RSUs. DERs are accumulated and paid when the underlying shares vest. As of September 28, 2019, approximately 1.1 million shares were reserved for future issuance under the Director Plan.

Apple Inc. | 2019 Form 10-K | 49

Rule 10b5-1 Trading Plans
During the three months ended September 28, 2019, Section 16 officers Timothy D. Cook, Chris Kondo, Luca Maestri, Deirdre O’Brien and Jeffrey Williams had equity trading plans in place in accordance with Rule 10b5-1(c)(1) under the Exchange Act. An equity trading plan is a written document that pre-establishes the amounts, prices and dates (or formula for determining the amounts, prices and dates) of future purchases or sales of the Company’s stock, including shares acquired under the Company’s employee and director equity plans.
Employee Stock Purchase Plan
The Employee Stock Purchase Plan (the “Purchase Plan”) is a shareholder-approved plan under which substantially all employees may purchase the Company’s common stock through payroll deductions at a price equal to 85% of the lower of the fair market values of the stock as of the beginning or the end of six-month offering periods. An employee’s payroll deductions under the Purchase Plan are limited to 10% of the employee’s compensation and employees may not purchase more than $25,000 of stock during any calendar year. As of September 28, 2019, approximately 31.1 million shares were reserved for future issuance under the Purchase Plan.
401(k) Plan
The Company’s 401(k) Plan is a deferred salary arrangement under Section 401(k) of the Internal Revenue Code. Under the 401(k) Plan, participating U.S. employees may defer a portion of their pre-tax earnings, up to the IRS annual contribution limit ($19,000 for calendar year 2019). The Company matches 50% to 100% of each employee’s contributions, depending on length of service, up to a maximum of 6% of the employee’s eligible earnings.
Restricted Stock Units
A summary of the Company’s RSU activity and related information for 2019, 2018 and 2017, is as follows:
 
Number of
RSUs
(in thousands)
 
Weighted-Average
Grant Date Fair
Value Per RSU
 
Aggregate
Fair Value
(in millions)
Balance as of September 24, 2016
99,089

 
$
97.54

 
 
RSUs granted
50,112

 
$
121.65

 
 
RSUs vested
(45,735
)
 
$
95.48

 
 
RSUs canceled
(5,895
)
 
$
106.87

 
 
Balance as of September 30, 2017
97,571

 
$
110.33

 
 
RSUs granted
45,351

 
$
162.86

 
 
RSUs vested
(44,718
)
 
$
111.24

 
 
RSUs canceled
(6,049
)
 
$
127.82

 
 
Balance as of September 29, 2018
92,155

 
$
134.60

 
 
RSUs granted
36,852

 
$
215.95

 
 
RSUs vested
(42,088
)
 
$
135.21

 
 
RSUs canceled
(5,402
)
 
$
162.85

 
 
Balance as of September 28, 2019
81,517

 
$
169.18

 
$
17,838


The fair value as of the respective vesting dates of RSUs was $8.6 billion, $7.6 billion and $6.1 billion for 2019, 2018 and 2017, respectively. The majority of RSUs that vested in 2019, 2018 and 2017 were net share settled such that the Company withheld shares with a value equivalent to the employees’ obligation for the applicable income and other employment taxes, and remitted the cash to the appropriate taxing authorities. The total shares withheld were approximately 14.8 million, 16.0 million and 15.4 million for 2019, 2018 and 2017, respectively, and were based on the value of the RSUs on their respective vesting dates as determined by the Company’s closing stock price. Total payments for the employees’ tax obligations to taxing authorities were $3.0 billion, $2.7 billion and $2.0 billion in 2019, 2018 and 2017, respectively. These net share settlements had the effect of share repurchases by the Company as they reduced the number of shares that would have otherwise been issued as a result of the vesting and did not represent an expense to the Company.

Apple Inc. | 2019 Form 10-K | 50

Share-Based Compensation
The following table shows share-based compensation expense and the related income tax benefit included in the Consolidated Statements of Operations for 2019, 2018 and 2017 (in millions):
 
2019
 
2018
 
2017
Share-based compensation expense
$
6,068

 
$
5,340

 
$
4,840

Income tax benefit related to share-based compensation expense
$
(1,967
)
 
$
(1,893
)
 
$
(1,632
)

As of September 28, 2019, the total unrecognized compensation cost related to outstanding RSUs and stock options was $10.5 billion, which the Company expects to recognize over a weighted-average period of 2.5 years.
Note 10 – Commitments and Contingencies
Accrued Warranty and Guarantees
The following table shows changes in the Company’s accrued warranties and related costs for 2019, 2018 and 2017 (in millions):
 
2019
 
2018
 
2017
Beginning accrued warranty and related costs
$
3,692

 
$
3,834

 
$
3,702

Cost of warranty claims
(3,857
)
 
(4,115
)
 
(4,322
)
Accruals for product warranty
3,735

 
3,973

 
4,454

Ending accrued warranty and related costs
$
3,570


$
3,692


$
3,834


The Company offers an iPhone Upgrade Program, which is available to customers who purchase a qualifying iPhone in the U.S., the U.K. and mainland China. The iPhone Upgrade Program provides customers the right to trade in that iPhone for a specified amount when purchasing a new iPhone, provided certain conditions are met. The Company accounts for the trade-in right as a guarantee liability and recognizes arrangement revenue net of the fair value of such right, with subsequent changes to the guarantee liability recognized within net sales.
Concentrations in the Available Sources of Supply of Materials and Product
Although most components essential to the Company’s business are generally available from multiple sources, certain components are currently obtained from single or limited sources. The Company also competes for various components with other participants in the markets for smartphones, personal computers, tablets and other electronic devices. Therefore, many components used by the Company, including those that are available from multiple sources, are at times subject to industry-wide shortage and significant commodity pricing fluctuations.
The Company uses some custom components that are not commonly used by its competitors, and new products introduced by the Company often utilize custom components available from only one source. When a component or product uses new technologies, initial capacity constraints may exist until the suppliers’ yields have matured or their manufacturing capacities have increased. The continued availability of these components at acceptable prices, or at all, may be affected if suppliers decide to concentrate on the production of common components instead of components customized to meet the Company’s requirements.
The Company has entered into agreements for the supply of many components; however, there can be no guarantee that the Company will be able to extend or renew these agreements on similar terms, or at all.
Substantially all of the Company’s hardware products are manufactured by outsourcing partners that are located primarily in Asia, with some Mac computers manufactured in the U.S. and Ireland.
Other Off–Balance Sheet Commitments
Operating Leases
The Company leases various equipment and facilities, including retail space, under noncancelable operating lease arrangements. The Company does not currently utilize any other off–balance sheet financing arrangements. As of September 28, 2019, the Company’s total future minimum lease payments under noncancelable operating leases were $10.8 billion. The Company’s retail store and other facility leases typically have original terms not exceeding 10 years and generally contain multi-year renewal options.

Apple Inc. | 2019 Form 10-K | 51

Rent expense under all operating leases, including both cancelable and noncancelable leases, was $1.3 billion, $1.2 billion and $1.1 billion in 2019, 2018 and 2017, respectively. Future minimum lease payments under noncancelable operating leases having initial or remaining terms in excess of one year as of September 28, 2019, are as follows (in millions):
2020
$
1,306

2021
1,276

2022
1,137

2023
912

2024
834

Thereafter
5,373

Total
$
10,838


Unconditional Purchase Obligations
The Company has entered into certain off–balance sheet commitments that require the future purchase of goods or services (“unconditional purchase obligations”). The Company’s unconditional purchase obligations primarily consist of payments for supplier arrangements, Internet and telecommunication services, intellectual property licenses and content creation. Future payments under noncancelable unconditional purchase obligations having a remaining term in excess of one year as of September 28, 2019, are as follows (in millions):
2020
$
2,476

2021
2,386

2022
1,859

2023
1,162

2024
218

Thereafter
110

Total
$
8,211


Contingencies
The Company is subject to various legal proceedings and claims that have arisen in the ordinary course of business and that have not been fully resolved. The outcome of litigation is inherently uncertain. If one or more legal matters were resolved against the Company in a reporting period for amounts above management’s expectations, the Company’s financial condition and operating results for that reporting period could be materially adversely affected. In the opinion of management, there was not at least a reasonable possibility the Company may have incurred a material loss, or a material loss greater than a recorded accrual, concerning loss contingencies for asserted legal and other claims, except for the following matters:
VirnetX
VirnetX, Inc. (“VirnetX”) filed two lawsuits in the U.S. District Court for the Eastern District of Texas (the “Eastern Texas District Court”) against the Company alleging that certain Company products infringe four patents (the “VirnetX Patents”) relating to network communications technology (“VirnetX I” and “VirnetX II”). On September 30, 2016, a jury returned a verdict in VirnetX I against the Company and awarded damages of $302 million, which later increased to $440 million in post-trial proceedings. The Company appealed the VirnetX I verdict to the U.S. Court of Appeals for the Federal Circuit (the “Federal Circuit”). On April 11, 2018, a jury returned a verdict in VirnetX II against the Company and awarded damages of $503 million. VirnetX II is currently on appeal. The Company has challenged the validity of the VirnetX Patents at the U.S. Patent and Trademark Office (the “PTO”). In response, the PTO has declared the VirnetX Patents invalid. VirnetX appealed the invalidity decision of the PTO to the Federal Circuit. The Federal Circuit consolidated the Company’s appeal of the Eastern Texas District Court VirnetX I verdict and VirnetX’s appeals from the PTO invalidity proceedings. On January 15, 2019, the Federal Circuit affirmed the VirnetX I verdict, which the Company intends to further appeal. On July 8, 2019, the Federal Circuit remanded one of VirnetX’s two appeals of the PTO’s invalidity decisions back to the PTO for further proceedings. On August 1, 2019, the Federal Circuit affirmed-in-part, vacated-in-part, and remanded back to the PTO portions of VirnetX’s second appeal. The Company has accrued its best estimate for the ultimate resolution of these matters.

Apple Inc. | 2019 Form 10-K | 52

Qualcomm
On January 20, 2017, the Company filed a lawsuit against Qualcomm Incorporated and affiliated parties (“Qualcomm”) in the U.S. District Court for the Southern District of California seeking, among other things, to enjoin Qualcomm from requiring the Company to pay royalties at the rate demanded by Qualcomm. No Qualcomm-related royalty payments had been remitted by the Company to its contract manufacturers since the beginning of the second quarter of 2017. Following the Company’s lawsuit, Qualcomm filed patent infringement suits against the Company and its affiliates in the U.S. and various international jurisdictions, some of which sought to enjoin the sale of certain of the Company’s products in particular countries.
On April 16, 2019, the Company and Qualcomm reached a settlement agreement to dismiss all litigation between the two companies worldwide. The companies also reached a multi-year license agreement and a multi-year supply agreement. Under the terms of the settlement agreement, Apple made a payment to Qualcomm to, among other things, resolve disputes over the withheld royalty payments.
iOS Performance Management Cases
Various civil litigation matters have been filed in state and federal courts in the U.S. and in various international jurisdictions alleging violation of consumer protection laws, fraud, computer intrusion and other causes of action related to the Company’s performance management feature used in its iPhone operating systems, introduced to certain iPhones in iOS updates 10.2.1 and 11.2. The claims seek monetary damages and other non-monetary relief. On April 5, 2018, several U.S. federal actions were consolidated through a Multidistrict Litigation process into a single action in the U.S. District Court for the Northern District of California. In addition to civil litigation, the Company is also responding to governmental investigations and requests for information relating to the performance management feature. The Company believes that its iPhones were not defective, that the performance management feature introduced with iOS updates 10.2.1 and 11.2 was intended to, and did, improve customers’ user experience, and that the Company did not make any misleading statements or fail to disclose any material information. The Company has accrued its best estimate for the ultimate resolution of these matters.
French Competition Authority
In June 2019, the French Competition Authority (“FCA”) issued a report alleging that aspects of the Company’s sales and distribution practices in France violate French competition law. The Company vigorously disagrees with the allegations, and a hearing of arguments was held before the FCA on October 15, 2019. The Company is awaiting the decision of the FCA, which may include a fine.
Note 11 – Segment Information and Geographic Data
The Company reports segment information based on the “management” approach. The management approach designates the internal reporting used by management for making decisions and assessing performance as the source of the Company’s reportable segments.
The Company manages its business primarily on a geographic basis. The Company’s reportable segments consist of the Americas, Europe, Greater China, Japan and Rest of Asia Pacific. Americas includes both North and South America. Europe includes European countries, as well as India, the Middle East and Africa. Greater China includes China, Hong Kong and Taiwan. Rest of Asia Pacific includes Australia and those Asian countries not included in the Company’s other reportable segments. Although the reportable segments provide similar hardware and software products and similar services, each one is managed separately to better align with the location of the Company’s customers and distribution partners and the unique market dynamics of each geographic region. The accounting policies of the various segments are the same as those described in Note 1, “Summary of Significant Accounting Policies.”
The Company evaluates the performance of its reportable segments based on net sales and operating income. Net sales for geographic segments are generally based on the location of customers and sales through the Company’s retail stores located in those geographic locations. Operating income for each segment includes net sales to third parties, related cost of sales and operating expenses directly attributable to the segment. Advertising expenses are generally included in the geographic segment in which the expenditures are incurred. Operating income for each segment excludes other income and expense and certain expenses managed outside the reportable segments. Costs excluded from segment operating income include various corporate expenses such as research and development, corporate marketing expenses, certain share-based compensation expenses, income taxes, various nonrecurring charges and other separately managed general and administrative costs. The Company does not include intercompany transfers between segments for management reporting purposes.

Apple Inc. | 2019 Form 10-K | 53

The following table shows information by reportable segment for 2019, 2018 and 2017 (in millions):
 
2019
 
2018
 
2017
Americas:
 
 
 
 
 
Net sales
$
116,914

 
$
112,093

 
$
96,600

Operating income
$
35,099

 
$
34,864

 
$
30,684

 
 
 
 
 
 
Europe:
 
 
 
 
 
Net sales
$
60,288

 
$
62,420

 
$
54,938

Operating income
$
19,195

 
$
19,955

 
$
16,514

 
 
 
 
 
 
Greater China:
 
 
 
 
 
Net sales
$
43,678

 
$
51,942

 
$
44,764

Operating income
$
16,232

 
$
19,742

 
$
17,032

 
 
 
 
 
 
Japan:
 
 
 
 
 
Net sales
$
21,506

 
$
21,733

 
$
17,733

Operating income
$
9,369

 
$
9,500

 
$
8,097

 
 
 
 
 
 
Rest of Asia Pacific:
 
 
 
 
 
Net sales
$
17,788

 
$
17,407

 
$
15,199

Operating income
$
6,055

 
$
6,181

 
$
5,304


A reconciliation of the Company’s segment operating income to the Consolidated Statements of Operations for 2019, 2018 and 2017 is as follows (in millions):
 
2019
 
2018
 
2017
Segment operating income
$
85,950

 
$
90,242

 
$
77,631

Research and development expense
(16,217
)
 
(14,236
)
 
(11,581
)
Other corporate expenses, net
(5,803
)
 
(5,108
)
 
(4,706
)
Total operating income
$
63,930

 
$
70,898

 
$
61,344


The U.S. and China were the only countries that accounted for more than 10% of the Company’s net sales in 2019, 2018 and 2017. There was no single customer that accounted for more than 10% of net sales in 2019, 2018 and 2017. Net sales for 2019, 2018 and 2017 and long-lived assets as of September 28, 2019 and September 29, 2018 were as follows (in millions):
 
2019
 
2018
 
2017
Net sales:
 
 
 
 
 
U.S.
$
102,266

 
$
98,061

 
$
84,339

China (1)
43,678

 
51,942

 
44,764

Other countries
114,230

 
115,592

 
100,131

Total net sales
$
260,174


$
265,595


$
229,234


 
2019
 
2018
Long-lived assets:
 
 
 
U.S.
$
24,711

 
$
23,963

China (1)
9,064

 
13,268

Other countries
3,603

 
4,073

Total long-lived assets
$
37,378

 
$
41,304

(1)
China includes Hong Kong and Taiwan. Long-lived assets located in China consist primarily of product tooling and manufacturing process equipment and assets related to retail stores and related infrastructure.

Apple Inc. | 2019 Form 10-K | 54

Note 12 – Selected Quarterly Financial Information (Unaudited)
The following tables show a summary of the Company’s quarterly financial information for each of the four quarters of 2019 and 2018 (in millions, except per share amounts):
 
Fourth Quarter
 
Third Quarter
 
Second Quarter
 
First Quarter
2019:
 
 
 
 
 
 
 
Total net sales
$
64,040

 
$
53,809

 
$
58,015

 
$
84,310

Gross margin
$
24,313

 
$
20,227

 
$
21,821

 
$
32,031

Net income
$
13,686

 
$
10,044

 
$
11,561

 
$
19,965

 
 
 
 
 
 
 
 
Earnings per share (1):
 
 
 
 
 
 
 
Basic
$
3.05

 
$
2.20

 
$
2.47

 
$
4.22

Diluted
$
3.03

 
$
2.18

 
$
2.46

 
$
4.18

 
Fourth Quarter
 
Third Quarter
 
Second Quarter
 
First Quarter
2018:
 
 
 
 
 
 
 
Total net sales
$
62,900

 
$
53,265

 
$
61,137

 
$
88,293

Gross margin
$
24,084

 
$
20,421

 
$
23,422

 
$
33,912

Net income
$
14,125

 
$
11,519

 
$
13,822

 
$
20,065

 
 
 
 
 
 
 
 
Earnings per share (1):
 
 
 
 
 
 
 
Basic
$
2.94

 
$
2.36

 
$
2.75

 
$
3.92

Diluted
$
2.91

 
$
2.34

 
$
2.73

 
$
3.89

 
(1)
Basic and diluted earnings per share are computed independently for each of the quarters presented. Therefore, the sum of quarterly basic and diluted per share information may not equal annual basic and diluted earnings per share.

Apple Inc. | 2019 Form 10-K | 55


Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of Apple Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Apple Inc. as of September 28, 2019 and September 29, 2018, the related consolidated statements of operations, comprehensive income, shareholders’ equity and cash flows for each of the three years in the period ended September 28, 2019, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of Apple Inc. at September 28, 2019 and September 29, 2018, and the results of its operations and its cash flows for each of the three years in the period ended September 28, 2019, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (the “PCAOB”), Apple Inc.’s internal control over financial reporting as of September 28, 2019, based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated October 30, 2019 expressed an unqualified opinion thereon.
Basis for Opinion
These financial statements are the responsibility of Apple Inc.’s management. Our responsibility is to express an opinion on Apple Inc.’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to Apple Inc. in accordance with the U.S. federal securities laws and the applicable rules and regulations of the U.S. Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the account or disclosure to which it relates.
 
European Commission State Aid Matter Uncertain Tax Position
Description of the Matter
As discussed in Note 5 of the financial statements, the European Commission (“EC”) has announced its decision that Ireland granted state aid to Apple Inc. by providing tax opinions in 1991 and 2007 concerning the tax allocation of profits of the Irish branches of two subsidiaries of Apple Inc. The decision ordered Ireland to calculate and recover additional taxes from Apple Inc. for the period from June 2003 through December 2014. The adjusted amount indicated by the EC to be recovered is up to €12.9 billion, plus interest.
Auditing management’s evaluation of the uncertain tax position stemming from the effects of the EC decision is complex and highly judgmental due to the inherent uncertainty in predicting the ultimate resolution of the matter.

Apple Inc. | 2019 Form 10-K | 56

How We Addressed the
Matter in Our Audit
We tested controls over the risk of material misstatement relating to the evaluation of the EC state aid matter, including management’s evaluation of the advice of legal counsel, the assessment as to whether Apple Inc.’s position is more likely than not to be sustained and the development of the related disclosure.
To evaluate Apple Inc.’s assessment of whether sustainment of its position is a more likely than not outcome, including underlying assumptions, our audit procedures included, among others, reading the EC August 2016 ruling and available correspondence between Apple Inc. and the EC, and the EC and Ireland. We also requested and received internal and external legal counsel confirmation letters, discussed the allegations with internal and external legal counsel and Apple Inc. tax personnel and obtained a representation letter from Apple Inc. We involved our EC and tax subject matter resources in considering the applicable tax laws, the pending appeal, the current status of legal precedent relevant to that appeal and the proceedings at the court hearing in September 2019. In addition, we evaluated Apple Inc.’s disclosure included in Note 5 in relation to this matter.

/s/ Ernst & Young LLP
We have served as Apple Inc.’s auditor since 2009.

San Jose, California
October 30, 2019

Apple Inc. | 2019 Form 10-K | 57


Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of Apple Inc.
Opinion on Internal Control Over Financial Reporting
We have audited Apple Inc.’s internal control over financial reporting as of September 28, 2019, based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the “COSO criteria”). In our opinion, Apple Inc. maintained, in all material respects, effective internal control over financial reporting as of September 28, 2019, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (the “PCAOB”), the consolidated balance sheets of Apple Inc. as of September 28, 2019 and September 29, 2018, the related consolidated statements of operations, comprehensive income, shareholders’ equity and cash flows for each of the three years in the period ended September 28, 2019, and the related notes and our report dated October 30, 2019 expressed an unqualified opinion thereon.
Basis for Opinion
Apple Inc.’s management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Annual Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on Apple Inc.’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to Apple Inc. in accordance with the U.S. federal securities laws and the applicable rules and regulations of the U.S. Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.


/s/ Ernst & Young LLP

San Jose, California
October 30, 2019

Apple Inc. | 2019 Form 10-K | 58

YEAR 2018
Item 8.
Financial Statements and Supplementary Data
Index to Consolidated Financial Statements
 
Page
 
 
 
 
 
 
 
 
All financial statement schedules have been omitted, since the required information is not applicable or is not present in amounts sufficient to require submission of the schedule, or because the information required is included in the consolidated financial statements and notes thereto.

Apple Inc. | 2018 Form 10-K | 37

Apple Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In millions, except number of shares which are reflected in thousands and per share amounts)

 
Years ended
 
September 29,
2018
 
September 30,
2017
 
September 24,
2016
Net sales
$
265,595

 
$
229,234

 
$
215,639

Cost of sales
163,756

 
141,048

 
131,376

Gross margin
101,839


88,186


84,263

 
 
 
 
 
 
Operating expenses:
 
 
 
 
 
Research and development
14,236

 
11,581

 
10,045

Selling, general and administrative
16,705

 
15,261

 
14,194

Total operating expenses
30,941


26,842


24,239

 
 
 
 
 
 
Operating income
70,898

 
61,344

 
60,024

Other income/(expense), net
2,005

 
2,745

 
1,348

Income before provision for income taxes
72,903


64,089


61,372

Provision for income taxes
13,372

 
15,738

 
15,685

Net income
$
59,531


$
48,351


$
45,687

 
 
 
 
 
 
Earnings per share:
 
 
 
 
 
Basic
$
12.01

 
$
9.27

 
$
8.35

Diluted
$
11.91

 
$
9.21

 
$
8.31

 
 
 
 
 
 
Shares used in computing earnings per share:
 
 
 
 
 
Basic
4,955,377

 
5,217,242

 
5,470,820

Diluted
5,000,109

 
5,251,692

 
5,500,281

See accompanying Notes to Consolidated Financial Statements.

Apple Inc. | 2018 Form 10-K | 38

Apple Inc.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In millions)

 
Years ended
 
September 29,
2018
 
September 30,
2017
 
September 24,
2016
Net income
$
59,531

 
$
48,351

 
$
45,687

Other comprehensive income/(loss):
 
 
 
 
 
Change in foreign currency translation, net of tax effects of $(1), $(77) and $8, respectively
(525
)
 
224

 
75

 
 
 
 
 
 
Change in unrealized gains/losses on derivative instruments:
 
 
 
 
 
Change in fair value of derivatives, net of tax benefit/(expense) of $(149), $(478) and $(7), respectively
523

 
1,315

 
7

Adjustment for net (gains)/losses realized and included in net income, net of tax expense/(benefit) of $(104), $475 and $131, respectively
382

 
(1,477
)
 
(741
)
Total change in unrealized gains/losses on derivative instruments, net of tax
905


(162
)

(734
)
 
 
 
 
 
 
Change in unrealized gains/losses on marketable securities:
 
 
 
 
 
Change in fair value of marketable securities, net of tax benefit/(expense) of $1,156, $425 and $(863), respectively
(3,407
)
 
(782
)
 
1,582

Adjustment for net (gains)/losses realized and included in net income, net of tax expense/(benefit) of $21, $35 and $(31), respectively
1

 
(64
)
 
56

Total change in unrealized gains/losses on marketable securities, net of tax
(3,406
)

(846
)

1,638

 
 
 
 
 
 
Total other comprehensive income/(loss)
(3,026
)

(784
)

979

Total comprehensive income
$
56,505


$
47,567


$
46,666

See accompanying Notes to Consolidated Financial Statements.

Apple Inc. | 2018 Form 10-K | 39

Apple Inc.
CONSOLIDATED BALANCE SHEETS
(In millions, except number of shares which are reflected in thousands and par value)

 
September 29,
2018
 
September 30,
2017
ASSETS:
Current assets:
 
 
 
Cash and cash equivalents
$
25,913

 
$
20,289

Marketable securities
40,388

 
53,892

Accounts receivable, net
23,186

 
17,874

Inventories
3,956

 
4,855

Vendor non-trade receivables
25,809

 
17,799

Other current assets
12,087

 
13,936

Total current assets
131,339

 
128,645

 
 
 
 
Non-current assets:
 
 
 
Marketable securities
170,799

 
194,714

Property, plant and equipment, net
41,304

 
33,783

Other non-current assets
22,283

 
18,177

Total non-current assets
234,386

 
246,674

Total assets
$
365,725

 
$
375,319

 
 
 
 
LIABILITIES AND SHAREHOLDERS’ EQUITY:
Current liabilities:
 
 
 
Accounts payable
$
55,888

 
$
44,242

Other current liabilities
32,687

 
30,551

Deferred revenue
7,543

 
7,548

Commercial paper
11,964

 
11,977

Term debt
8,784

 
6,496

Total current liabilities
116,866

 
100,814

 
 
 
 
Non-current liabilities:
 
 
 
Deferred revenue
2,797

 
2,836

Term debt
93,735

 
97,207

Other non-current liabilities
45,180

 
40,415

Total non-current liabilities
141,712

 
140,458

Total liabilities
258,578

 
241,272

 
 
 
 
Commitments and contingencies

 

 
 
 
 
Shareholders’ equity:
 
 
 
Common stock and additional paid-in capital, $0.00001 par value: 12,600,000 shares authorized; 4,754,986 and 5,126,201 shares issued and outstanding, respectively
40,201

 
35,867

Retained earnings
70,400

 
98,330

Accumulated other comprehensive income/(loss)
(3,454
)
 
(150
)
Total shareholders’ equity
107,147

 
134,047

Total liabilities and shareholders’ equity
$
365,725


$
375,319

See accompanying Notes to Consolidated Financial Statements.

Apple Inc. | 2018 Form 10-K | 40

Apple Inc.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(In millions, except number of shares which are reflected in thousands and per share amounts)

 
Common Stock and
Additional Paid-In Capital
 
Retained Earnings
 
Accumulated Other
Comprehensive Income/(Loss)
 
Total Shareholders’ Equity
 
Shares
 
Amount
 
Balances as of September 26, 2015
5,578,753

 
$
27,416

 
$
92,284

 
$
(345
)
 
$
119,355

Net income
—

 
—

 
45,687

 
—

 
45,687

Other comprehensive income/(loss)
—

 
—

 
—

 
979

 
979

Dividends and dividend equivalents declared at $2.18 per share or RSU
—

 
—

 
(12,188
)
 
—

 
(12,188
)
Repurchase of common stock
(279,609
)
 
—

 
(29,000
)
 
—

 
(29,000
)
Share-based compensation
—

 
4,262

 
—

 
—

 
4,262

Common stock issued, net of shares withheld for employee taxes
37,022

 
(806
)
 
(419
)
 
—

 
(1,225
)
Tax benefit from equity awards, including transfer pricing adjustments
—

 
379

 
—

 
—

 
379

Balances as of September 24, 2016
5,336,166

 
31,251

 
96,364

 
634

 
128,249

Net income
—

 
—

 
48,351

 
—

 
48,351

Other comprehensive income/(loss)
—

 
—

 
—

 
(784
)
 
(784
)
Dividends and dividend equivalents declared at $2.40 per share or RSU
—

 
—

 
(12,803
)
 
—

 
(12,803
)
Repurchase of common stock
(246,496
)
 
—

 
(33,001
)
 
—

 
(33,001
)
Share-based compensation
—

 
4,909

 
—

 
—

 
4,909

Common stock issued, net of shares withheld for employee taxes
36,531

 
(913
)
 
(581
)
 
—

 
(1,494
)
Tax benefit from equity awards, including transfer pricing adjustments
—

 
620

 
—

 
—

 
620

Balances as of September 30, 2017
5,126,201

 
35,867

 
98,330

 
(150
)
 
134,047

Cumulative effect of change in accounting principle
—

 
—

 
278

 
(278
)
 
—

Net income
—

 
—

 
59,531

 
—

 
59,531

Other comprehensive income/(loss)
—

 
—

 
—

 
(3,026
)
 
(3,026
)
Dividends and dividend equivalents declared at $2.72 per share or RSU
—

 
—

 
(13,735
)
 
—

 
(13,735
)
Repurchase of common stock
(405,549
)
 
—

 
(73,056
)
 
—

 
(73,056
)
Share-based compensation
—

 
5,443

 
—

 
—

 
5,443

Common stock issued, net of shares withheld for employee taxes
34,334

 
(1,109
)
 
(948
)
 
—

 
(2,057
)
Balances as of September 29, 2018
4,754,986

 
$
40,201

 
$
70,400

 
$
(3,454
)
 
$
107,147

See accompanying Notes to Consolidated Financial Statements.

Apple Inc. | 2018 Form 10-K | 41

Apple Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
 
Years ended
 
September 29,
2018
 
September 30,
2017
 
September 24,
2016
Cash and cash equivalents, beginning of the year
$
20,289

 
$
20,484

 
$
21,120

Operating activities:
 
 
 
 
 
Net income
59,531

 
48,351

 
45,687

Adjustments to reconcile net income to cash generated by operating activities:
 
 
 
 
 
Depreciation and amortization
10,903

 
10,157

 
10,505

Share-based compensation expense
5,340

 
4,840

 
4,210

Deferred income tax expense/(benefit)
(32,590
)
 
5,966

 
4,938

Other
(444
)
 
(166
)
 
486

Changes in operating assets and liabilities:
 
 
 
 
 
Accounts receivable, net
(5,322
)
 
(2,093
)
 
527

Inventories
828

 
(2,723
)
 
217

Vendor non-trade receivables
(8,010
)
 
(4,254
)
 
(51
)
Other current and non-current assets
(423
)
 
(5,318
)
 
1,055

Accounts payable
9,175

 
8,966

 
2,117

Deferred revenue
(44
)
 
(626
)
 
(1,554
)
Other current and non-current liabilities
38,490

 
1,125

 
(1,906
)
Cash generated by operating activities
77,434


64,225


66,231

Investing activities:
 
 
 
 
 
Purchases of marketable securities
(71,356
)
 
(159,486
)
 
(142,428
)
Proceeds from maturities of marketable securities
55,881

 
31,775

 
21,258

Proceeds from sales of marketable securities
47,838

 
94,564

 
90,536

Payments for acquisition of property, plant and equipment
(13,313
)
 
(12,451
)
 
(12,734
)
Payments made in connection with business acquisitions, net
(721
)
 
(329
)
 
(297
)
Purchases of non-marketable securities
(1,871
)
 
(521
)
 
(1,388
)
Proceeds from non-marketable securities
353

 
126

 
—

Other
(745
)
 
(124
)
 
(924
)
Cash generated by/(used in) investing activities
16,066


(46,446
)

(45,977
)
Financing activities:
 
 
 
 
 
Proceeds from issuance of common stock
669

 
555

 
495

Payments for taxes related to net share settlement of equity awards
(2,527
)
 
(1,874
)
 
(1,570
)
Payments for dividends and dividend equivalents
(13,712
)
 
(12,769
)
 
(12,150
)
Repurchases of common stock
(72,738
)
 
(32,900
)
 
(29,722
)
Proceeds from issuance of term debt, net
6,969

 
28,662

 
24,954

Repayments of term debt
(6,500
)
 
(3,500
)
 
(2,500
)
Change in commercial paper, net
(37
)
 
3,852

 
(397
)
Cash used in financing activities
(87,876
)

(17,974
)

(20,890
)
Increase/(Decrease) in cash and cash equivalents
5,624

 
(195
)
 
(636
)
Cash and cash equivalents, end of the year
$
25,913


$
20,289


$
20,484

Supplemental cash flow disclosure:
 
 
 
 
 
Cash paid for income taxes, net
$
10,417

 
$
11,591

 
$
10,444

Cash paid for interest
$
3,022

 
$
2,092

 
$
1,316

See accompanying Notes to Consolidated Financial Statements.

Apple Inc. | 2018 Form 10-K | 42

Apple Inc.
Notes to Consolidated Financial Statements
Note 1 – Summary of Significant Accounting Policies
Apple Inc. and its wholly-owned subsidiaries (collectively “Apple” or the “Company”) designs, manufactures and markets mobile communication and media devices and personal computers, and sells a variety of related software, services, accessories and third-party digital content and applications. The Company’s products and services include iPhone, iPad, Mac, Apple Watch, AirPods, Apple TV, HomePod, a portfolio of consumer and professional software applications, iOS, macOS, watchOS and tvOS operating systems, iCloud, Apple Pay and a variety of other accessory, service and support offerings. The Company sells and delivers digital content and applications through the iTunes Store, App Store, Mac App Store, TV App Store, Book Store and Apple Music (collectively “Digital Content and Services”). The Company sells its products worldwide through its retail stores, online stores and direct sales force, as well as through third-party cellular network carriers, wholesalers, retailers and resellers. In addition, the Company sells a variety of third-party Apple-compatible products, including application software and various accessories, through its retail and online stores. The Company sells to consumers, small and mid-sized businesses and education, enterprise and government customers.
Basis of Presentation and Preparation
The accompanying consolidated financial statements include the accounts of the Company. Intercompany accounts and transactions have been eliminated. In the opinion of the Company’s management, the consolidated financial statements reflect all adjustments, which are normal and recurring in nature, necessary for fair financial statement presentation. The preparation of these consolidated financial statements and accompanying notes in conformity with U.S. generally accepted accounting principles (“GAAP”) requires management to make estimates and assumptions that affect the amounts reported. Actual results could differ materially from those estimates. Certain prior period amounts in the consolidated financial statements and accompanying notes have been reclassified to conform to the current period’s presentation.
The Company’s fiscal year is the 52- or 53-week period that ends on the last Saturday of September. The Company’s fiscal years 2018 and 2016 spanned 52 weeks each, whereas fiscal year 2017 included 53 weeks. A 14th week was included in the first fiscal quarter of 2017, as is done every five or six years, to realign the Company’s fiscal quarters with calendar quarters. Unless otherwise stated, references to particular years, quarters, months and periods refer to the Company’s fiscal years ended in September and the associated quarters, months and periods of those fiscal years.
Revenue Recognition
Net sales consist primarily of revenue from the sale of hardware, software, digital content and applications, accessories, and service and support contracts. The Company recognizes revenue when persuasive evidence of an arrangement exists, delivery has occurred, the sales price is fixed or determinable and collection is probable. Product is considered delivered to the customer once it has been shipped and title, risk of loss and rewards of ownership have been transferred. For most of the Company’s product sales, these criteria are met at the time the product is shipped. For online sales to individuals, for some sales to education customers in the U.S., and for certain other sales, the Company defers revenue until the customer receives the product because the Company retains a portion of the risk of loss on these sales during transit. For payment terms in excess of the Company’s standard payment terms, revenue is recognized as payments become due unless the Company has positive evidence that the sales price is fixed or determinable, such as a successful history of collection, without concession, on comparable arrangements. The Company recognizes revenue from the sale of hardware products, software bundled with hardware that is essential to the functionality of the hardware and third-party digital content sold on the iTunes Store in accordance with general revenue recognition accounting guidance. The Company recognizes revenue in accordance with industry-specific software accounting guidance for the following types of sales transactions: (i) standalone sales of software products, (ii) sales of software upgrades and (iii) sales of software bundled with hardware not essential to the functionality of the hardware.
For the sale of most third-party products, the Company recognizes revenue based on the gross amount billed to customers because the Company establishes its own pricing for such products, retains related inventory risk for physical products, is the primary obligor to the customer and assumes the credit risk for amounts billed to its customers. For third-party applications sold through the App Store and Mac App Store and certain digital content sold through the iTunes Store, the Company does not determine the selling price of the products and is not the primary obligor to the customer. Therefore, the Company accounts for such sales on a net basis by recognizing in net sales only the commission it retains from each sale. The portion of the gross amount billed to customers that is remitted by the Company to third-party app developers and certain digital content owners is not reflected in the Company’s Consolidated Statements of Operations.

Apple Inc. | 2018 Form 10-K | 43

The Company records deferred revenue when it receives payments in advance of the delivery of products or the performance of services. This includes amounts that have been deferred for unspecified and specified software upgrade rights and non-software services that are attached to hardware and software products. The Company sells gift cards redeemable at its retail and online stores, and also sells gift cards redeemable on iTunes Store, App Store, Mac App Store, TV App Store and Book Store for the purchase of digital content and software. The Company records deferred revenue upon the sale of the card, which is relieved upon redemption of the card by the customer. Revenue from AppleCare service and support contracts is deferred and recognized over the service coverage periods. AppleCare service and support contracts typically include extended phone support, repair services, web-based support resources and diagnostic tools offered under the Company’s standard limited warranty.
The Company records reductions to revenue for estimated commitments related to price protection and other customer incentive programs. For transactions involving price protection, the Company recognizes revenue net of the estimated amount to be refunded. For the Company’s other customer incentive programs, the estimated cost of these programs is recognized at the later of the date at which the Company has sold the product or the date at which the program is offered. The Company also records reductions to revenue for expected future product returns based on the Company’s historical experience. Revenue is recorded net of taxes collected from customers that are remitted to governmental authorities, with the collected taxes recorded as current liabilities until remitted to the relevant government authority.
Revenue Recognition for Arrangements with Multiple Deliverables
For multi-element arrangements that include hardware products containing software essential to the hardware product’s functionality, undelivered software elements that relate to the hardware product’s essential software, and undelivered non-software services, the Company allocates revenue to all deliverables based on their relative selling prices. In such circumstances, the Company uses a hierarchy to determine the selling price to be used for allocating revenue to deliverables: (i) vendor-specific objective evidence of fair value (“VSOE”), (ii) third-party evidence of selling price (“TPE”) and (iii) best estimate of selling price (“ESP”). VSOE generally exists only when the Company sells the deliverable separately and is the price actually charged by the Company for that deliverable. ESPs reflect the Company’s best estimates of what the selling prices of elements would be if they were sold regularly on a stand-alone basis. For multi-element arrangements accounted for in accordance with industry-specific software accounting guidance, the Company allocates revenue to all deliverables based on the VSOE of each element, and if VSOE does not exist revenue is recognized when elements lacking VSOE are delivered.
For sales of iPhone, iPad, Mac and certain other products, the Company has indicated it may from time to time provide future unspecified software upgrades to the device’s essential software and/or non-software services free of charge. The Company has identified up to three deliverables regularly included in arrangements involving the sale of these devices. The first deliverable, which represents the substantial portion of the allocated sales price, is the hardware and software essential to the functionality of the hardware device delivered at the time of sale. The second deliverable is the embedded right included with qualifying devices to receive, on a when-and-if-available basis, future unspecified software upgrades relating to the product’s essential software. The third deliverable is the non-software services to be provided to qualifying devices. The Company allocates revenue between these deliverables using the relative selling price method. Because the Company has neither VSOE nor TPE for these deliverables, the allocation of revenue is based on the Company’s ESPs. Revenue allocated to the delivered hardware and the related essential software is recognized at the time of sale, provided the other conditions for revenue recognition have been met. Revenue allocated to the embedded unspecified software upgrade rights and the non-software services is deferred and recognized on a straight-line basis over the estimated period the software upgrades and non-software services are expected to be provided. Cost of sales related to delivered hardware and related essential software, including estimated warranty costs, are recognized at the time of sale. Costs incurred to provide non-software services are recognized as cost of sales as incurred, and engineering and sales and marketing costs are recognized as operating expenses as incurred.
The Company’s process for determining its ESP for deliverables without VSOE or TPE considers multiple factors that may vary depending upon the unique facts and circumstances related to each deliverable including, where applicable, prices charged by the Company and market trends in the pricing for similar offerings, product-specific business objectives, estimated cost to provide the non-software services and the relative ESP of the upgrade rights and non-software services as compared to the total selling price of the product.
Shipping Costs
Amounts billed to customers related to shipping and handling are classified as revenue, and the Company’s shipping and handling costs are classified as cost of sales.
Advertising Costs
Advertising costs are expensed as incurred and included in selling, general and administrative expenses.

Apple Inc. | 2018 Form 10-K | 44

Share-Based Compensation
The Company generally measures share-based compensation based on the closing price of the Company’s common stock on the date of grant, and recognizes expense on a straight-line basis for its estimate of equity awards that will ultimately vest. Further information regarding share-based compensation can be found in Note 8, “Benefit Plans.”
During the first quarter of 2018, the Company adopted the Financial Accounting Standards Board’s (the “FASB”) Accounting Standards Update (“ASU”) No. 2016-09, Compensation – Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting (“ASU 2016-09”), which modified certain aspects of the accounting for share-based payment transactions, including income taxes, classification of awards and classification in the statement of cash flows. Historically, excess tax benefits or deficiencies from the Company’s equity awards were recorded as additional paid-in capital in its Consolidated Balance Sheets and were classified as a financing activity in its Consolidated Statements of Cash Flows. Beginning in 2018, the Company records any excess tax benefits or deficiencies from its equity awards as part of the provision for income taxes in its Consolidated Statements of Operations in the reporting periods in which equity vesting occurs. The Company elected to apply the cash flow classification requirements related to excess tax benefits retrospectively to all periods presented, which resulted in an increase to cash generated by operating activities in the Consolidated Statements of Cash Flows of $627 million and $407 million for 2017 and 2016, respectively.
Earnings Per Share
The following table shows the computation of basic and diluted earnings per share for 2018, 2017 and 2016 (net income in millions and shares in thousands):
 
2018
 
2017
 
2016
Numerator:
 
 
 
 
 
Net income
$
59,531

 
$
48,351

 
$
45,687

 
 
 
 
 
 
Denominator:
 
 
 
 
 
Weighted-average basic shares outstanding
4,955,377

 
5,217,242

 
5,470,820

Effect of dilutive securities
44,732

 
34,450

 
29,461

Weighted-average diluted shares
5,000,109

 
5,251,692


5,500,281

 
 
 
 
 
 
Basic earnings per share
$
12.01

 
$
9.27

 
$
8.35

Diluted earnings per share
$
11.91

 
$
9.21

 
$
8.31

Cash Equivalents and Marketable Securities
All highly liquid investments with maturities of three months or less at the date of purchase are classified as cash equivalents. The Company’s marketable debt and equity securities have been classified and accounted for as available-for-sale. The Company classifies its marketable debt securities as either short-term or long-term based on each instrument’s underlying contractual maturity date. Marketable equity securities, including mutual funds, are classified as short-term based on the nature of the securities and their availability for use in current operations. The cost of securities sold is determined using the specific identification method.
Inventories
Inventories are computed using the first-in, first-out method.
Property, Plant and Equipment
Depreciation on property, plant and equipment is recognized on a straight-line basis over the estimated useful lives of the assets, which for buildings is the lesser of 30 years or the remaining life of the underlying building; between one and five years for machinery and equipment, including product tooling and manufacturing process equipment; and the shorter of lease term or useful life for leasehold improvements. Capitalized costs related to internal-use software are amortized on a straight-line basis over the estimated useful lives of the assets, which range from three to five years. Depreciation and amortization expense on property and equipment was $9.3 billion, $8.2 billion and $8.3 billion during 2018, 2017 and 2016, respectively.
During 2018, non-cash investing activities involving property, plant and equipment resulted in a net increase to accounts payable and other current liabilities of $3.4 billion.

Apple Inc. | 2018 Form 10-K | 45

Fair Value Measurements
The Company’s valuation techniques used to measure the fair value of money market funds and certain marketable equity securities are derived from quoted prices in active markets for identical assets or liabilities. The valuation techniques used to measure the fair value of the Company’s debt instruments and all other financial instruments, which generally have counterparties with high credit ratings, are based on quoted market prices or model-driven valuations using significant inputs derived from or corroborated by observable market data.
Note 2 – Financial Instruments
Cash, Cash Equivalents and Marketable Securities
The following tables show the Company’s cash and available-for-sale securities by significant investment category as of September 29, 2018 and September 30, 2017 (in millions):
 
2018
 
Adjusted
Cost
 
Unrealized
Gains
 
Unrealized
Losses
 
Fair
Value
 
Cash and
Cash
Equivalents
 
Short-Term
Marketable
Securities
 
Long-Term
Marketable
Securities
Cash
$
11,575

 
$
—

 
$
—

 
$
11,575

 
$
11,575

 
$
—

 
$
—

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Level 1 (1):
 
 
 
 
 
 
 
 
 
 
 
 
 
Money market funds
8,083

 
—

 
—

 
8,083

 
8,083

 
—

 
—

Mutual funds
799

 
—

 
(116
)
 
683

 
—

 
683

 
—

Subtotal
8,882

 
—

 
(116
)
 
8,766

 
8,083

 
683

 
—

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Level 2 (2):
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. Treasury securities
47,296

 
—

 
(1,202
)
 
46,094

 
1,613

 
7,606

 
36,875

U.S. agency securities
4,127

 
—

 
(48
)
 
4,079

 
1,732

 
360

 
1,987

Non-U.S. government securities
21,601

 
49

 
(250
)
 
21,400

 
—

 
3,355

 
18,045

Certificates of deposit and time deposits
3,074

 
—

 
—

 
3,074

 
1,247

 
1,330

 
497

Commercial paper
2,573

 
—

 
—

 
2,573

 
1,663

 
910

 
—

Corporate securities
123,001

 
152

 
(2,038
)
 
121,115

 
—

 
25,162

 
95,953

Municipal securities
946

 
—

 
(12
)
 
934

 
—

 
178

 
756

Mortgage- and asset-backed securities
18,105

 
8

 
(623
)
 
17,490

 
—

 
804

 
16,686

Subtotal
220,723

 
209

 
(4,173
)
 
216,759

 
6,255

 
39,705

 
170,799

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total (3)
$
241,180

 
$
209

 
$
(4,289
)
 
$
237,100

 
$
25,913

 
$
40,388

 
$
170,799


Apple Inc. | 2018 Form 10-K | 46

 
2017
 
Adjusted
Cost
 
Unrealized
Gains
 
Unrealized
Losses
 
Fair
Value
 
Cash and
Cash
Equivalents
 
Short-Term
Marketable
Securities
 
Long-Term
Marketable
Securities
Cash
$
7,982

 
$
—

 
$
—

 
$
7,982

 
$
7,982

 
$
—

 
$
—

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Level 1 (1):
 
 
 
 
 
 
 
 
 
 
 
 
 
Money market funds
6,534

 
—

 
—

 
6,534

 
6,534

 
—

 
—

Mutual funds
799

 
—

 
(88
)
 
711

 
—

 
711

 
—

Subtotal
7,333

 
—

 
(88
)
 
7,245

 
6,534

 
711

 
—

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Level 2 (2):
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. Treasury securities
55,254

 
58

 
(230
)
 
55,082

 
865

 
17,228

 
36,989

U.S. agency securities
5,162

 
2

 
(9
)
 
5,155

 
1,439

 
2,057

 
1,659

Non-U.S. government securities
7,827

 
210

 
(37
)
 
8,000

 
9

 
123

 
7,868

Certificates of deposit and time deposits
5,832

 
—

 
—

 
5,832

 
1,142

 
3,918

 
772

Commercial paper
3,640

 
—

 
—

 
3,640

 
2,146

 
1,494

 
—

Corporate securities
152,724

 
969

 
(242
)
 
153,451

 
172

 
27,591

 
125,688

Municipal securities
961

 
4

 
(1
)
 
964

 
—

 
114

 
850

Mortgage- and asset-backed securities
21,684

 
35

 
(175
)
 
21,544

 
—

 
656

 
20,888

Subtotal
253,084

 
1,278

 
(694
)
 
253,668

 
5,773

 
53,181

 
194,714

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total
$
268,399

 
$
1,278

 
$
(782
)
 
$
268,895

 
$
20,289

 
$
53,892

 
$
194,714

(1)
Level 1 fair value estimates are based on quoted prices in active markets for identical assets or liabilities.
(2)
Level 2 fair value estimates are based on observable inputs other than quoted prices in active markets for identical assets and liabilities, quoted prices for identical or similar assets or liabilities in inactive markets, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
(3)
As of September 29, 2018, total cash, cash equivalents and marketable securities included $20.3 billion that was restricted from general use, related to the State Aid Decision (refer to Note 4, “Income Taxes”) and other agreements.
The Company may sell certain of its marketable securities prior to their stated maturities for reasons including, but not limited to, managing liquidity, credit risk, duration and asset allocation. The maturities of the Company’s long-term marketable securities generally range from one to five years.
The following tables show information about the Company’s marketable securities that had been in a continuous unrealized loss position for less than 12 months and for 12 months or greater as of September 29, 2018 and September 30, 2017 (in millions):
 
2018
 
Continuous Unrealized Losses
 
Less than 12 Months
 
12 Months or Greater
 
Total
Fair value of marketable securities
$
126,238

 
$
60,599

 
$
186,837

Unrealized losses
$
(2,400
)
 
$
(1,889
)
 
$
(4,289
)
 
2017
 
Continuous Unrealized Losses
 
Less than 12 Months
 
12 Months or Greater
 
Total
Fair value of marketable securities
$
101,986

 
$
8,290

 
$
110,276

Unrealized losses
$
(596
)
 
$
(186
)
 
$
(782
)

Apple Inc. | 2018 Form 10-K | 47

The Company typically invests in highly rated securities, with the primary objective of minimizing the potential risk of principal loss. The Company’s investment policy generally requires securities to be investment grade and limits the amount of credit exposure to any one issuer. Fair values were determined for each individual security in the investment portfolio. When evaluating an investment for other-than-temporary impairment, the Company reviews factors such as the length of time and extent to which fair value has been below its cost basis, the financial condition of the issuer and any changes thereto, changes in market interest rates and the Company’s intent to sell, or whether it is more likely than not it will be required to sell the investment before recovery of the investment’s cost basis. As of September 29, 2018, the Company does not consider any of its investments to be other-than-temporarily impaired.
Derivative Financial Instruments
The Company may use derivatives to partially offset its business exposure to foreign currency and interest rate risk on expected future cash flows, net investments in certain foreign subsidiaries, and certain existing assets and liabilities. However, the Company may choose not to hedge certain exposures for a variety of reasons including, but not limited to, accounting considerations or the prohibitive economic cost of hedging particular exposures. There can be no assurance the hedges will offset more than a portion of the financial impact resulting from movements in foreign currency exchange or interest rates.
To protect gross margins from fluctuations in foreign currency exchange rates, certain of the Company’s subsidiaries whose functional currency is the U.S. dollar may hedge a portion of forecasted foreign currency revenue, and subsidiaries whose functional currency is not the U.S. dollar may hedge a portion of forecasted inventory purchases not denominated in the subsidiaries’ functional currencies. The Company may enter into forward contracts, option contracts or other instruments to manage this risk and may designate these instruments as cash flow hedges. The Company generally hedges portions of its forecasted foreign currency exposure associated with revenue and inventory purchases, typically for up to 12 months.
To protect the net investment in a foreign operation from fluctuations in foreign currency exchange rates, the Company may enter into foreign currency forward and option contracts to offset a portion of the changes in the carrying amounts of these investments due to fluctuations in foreign currency exchange rates. In addition, the Company may use non-derivative financial instruments, such as its foreign currency–denominated debt, as hedges of its net investments in certain foreign subsidiaries. In both of these cases, the Company designates these instruments as net investment hedges.
To protect the Company’s foreign currency–denominated term debt or marketable securities from fluctuations in foreign currency exchange rates, the Company may enter into forward contracts, cross-currency swaps or other instruments. These instruments may offset a portion of the foreign currency remeasurement gains or losses, or changes in fair value. The Company may designate these instruments as either cash flow or fair value hedges. As of September 29, 2018, the Company’s hedged term debt– and marketable securities–related foreign currency transactions are expected to be recognized within 24 years.
The Company may also enter into non-designated foreign currency contracts to offset a portion of the foreign currency exchange gains and losses generated by the remeasurement of certain assets and liabilities denominated in non-functional currencies.
To protect the Company’s foreign currency–denominated term debt or marketable securities from fluctuations in interest rates, the Company may enter into interest rate swaps, options or other instruments. These instruments may offset a portion of the changes in interest income or expense, or changes in fair value. The Company designates these instruments as either cash flow or fair value hedges. As of September 29, 2018, the Company’s hedged interest rate transactions are expected to be recognized within 9 years.
Cash Flow Hedges
The effective portions of cash flow hedges are recorded in accumulated other comprehensive income/(loss) (“AOCI”) until the hedged item is recognized in earnings. Deferred gains and losses associated with cash flow hedges of foreign currency revenue are recognized as a component of net sales in the same period as the related revenue is recognized, and deferred gains and losses related to cash flow hedges of inventory purchases are recognized as a component of cost of sales in the same period as the related costs are recognized. Deferred gains and losses associated with cash flow hedges of interest income or expense are recognized in other income/(expense), net in the same period as the related income or expense is recognized. For options designated as cash flow hedges, changes in the time value are excluded from the assessment of hedge effectiveness. The ineffective portions and amounts excluded from the effectiveness testing of cash flow hedges are recognized in other income/(expense), net.
Derivative instruments designated as cash flow hedges must be de-designated as hedges when it is probable the forecasted hedged transaction will not occur in the initially identified time period or within a subsequent two-month time period. Deferred gains and losses in AOCI associated with such derivative instruments are reclassified into other income/(expense), net in the period of de-designation. Any subsequent changes in fair value of such derivative instruments are reflected in other income/(expense), net unless they are re-designated as hedges of other transactions.

Apple Inc. | 2018 Form 10-K | 48

Net Investment Hedges
The effective portions of net investment hedges are recorded in other comprehensive income/(loss) (“OCI”) as a part of the cumulative translation adjustment. The ineffective portions and amounts excluded from the effectiveness testing of net investment hedges are recognized in other income/(expense), net. For forward exchange contracts designated as net investment hedges, the Company excludes changes in fair value relating to changes in the forward carry component from its definition of effectiveness. Accordingly, any gains or losses related to this forward carry component are recognized in earnings in the current period.
Fair Value Hedges
Gains and losses related to changes in fair value hedges are recognized in earnings along with a corresponding loss or gain related to the change in value of the underlying hedged item in the same line in the Consolidated Statements of Operations.
Non-Designated Derivatives
Derivatives that are not designated as hedging instruments are adjusted to fair value through earnings in the financial statement line item to which the derivative relates. As a result, during 2018, the Company recognized a gain of $20 million in net sales, a gain of $85 million in cost of sales and a loss of $198 million in other income/(expense), net. During 2017, the Company recognized a gain of $20 million in net sales, a loss of $40 million in cost of sales and a gain of $606 million in other income/(expense), net.
The Company records all derivatives in the Consolidated Balance Sheets at fair value. The Company’s accounting treatment for these derivative instruments is based on its hedge designation. The following tables show the Company’s derivative instruments at gross fair value as of September 29, 2018 and September 30, 2017 (in millions):
 
2018
 
Fair Value of
Derivatives Designated
as Hedge Instruments
 
Fair Value of
Derivatives Not Designated
as Hedge Instruments
 
Total
Fair Value
Derivative assets (1):
 
 
 
 
 
Foreign exchange contracts
$
1,015

 
$
259

 
$
1,274

 
 
 
 
 
 
Derivative liabilities (2):
 
 
 
 
 
Foreign exchange contracts
$
543

 
$
137

 
$
680

Interest rate contracts
$
1,456

 
$
—

 
$
1,456

 
2017
 
Fair Value of
Derivatives Designated
as Hedge Instruments
 
Fair Value of
Derivatives Not Designated
as Hedge Instruments
 
Total
Fair Value
Derivative assets (1):
 
 
 
 
 
Foreign exchange contracts
$
1,049

 
$
363

 
$
1,412

Interest rate contracts
$
218

 
$
—

 
$
218

 
 
 
 
 
 
Derivative liabilities (2):
 
 
 
 
 
Foreign exchange contracts
$
759

 
$
501

 
$
1,260

Interest rate contracts
$
303

 
$
—

 
$
303

 
(1)
The fair value of derivative assets is measured using Level 2 fair value inputs and is recorded as other current assets and other non-current assets in the Consolidated Balance Sheets.
(2)
The fair value of derivative liabilities is measured using Level 2 fair value inputs and is recorded as other current liabilities and other non-current liabilities in the Consolidated Balance Sheets.
The Company classifies cash flows related to derivative financial instruments as operating activities in its Consolidated Statements of Cash Flows.

Apple Inc. | 2018 Form 10-K | 49

The following table shows the pre-tax gains and losses of the Company’s derivative and non-derivative instruments designated as cash flow, net investment and fair value hedges in OCI and the Consolidated Statements of Operations for 2018, 2017 and 2016 (in millions):
 
2018
 
2017
 
2016
Gains/(Losses) recognized in OCI – effective portion:
 
 
 
 
 
Cash flow hedges:
 
 
 
 
 
Foreign exchange contracts
$
682

 
$
1,797

 
$
109

Interest rate contracts
1

 
7

 
(57
)
Total
$
683


$
1,804


$
52

 
 
 
 
 
 
Net investment hedges:
 
 
 
 
 
Foreign currency debt
$
4

 
$
67

 
$
(258
)
 
 
 
 
 
 
Gains/(Losses) reclassified from AOCI into net income – effective portion:
 
 
 
 
 
Cash flow hedges:
 
 
 
 
 
Foreign exchange contracts
$
(482
)
 
$
1,958

 
$
885

Interest rate contracts
1

 
(2
)
 
(11
)
Total
$
(481
)

$
1,956


$
874

 
 
 
 
 
 
Gains/(Losses) on derivative instruments:
 
 
 
 
 
Fair value hedges:
 
 
 
 
 
Foreign exchange contracts
$
(168
)
 
$
—

 
$
—

Interest rate contracts
(1,363
)
 
(810
)
 
341

Total
$
(1,531
)
 
$
(810
)
 
$
341

 
 
 
 
 
 
Gains/(Losses) related to hedged items:
 
 
 
 
 
Fair value hedges:
 
 
 
 
 
Marketable securities
$
167

 
$
—

 
$
—

Fixed-rate debt
1,363

 
810

 
(341
)
Total
$
1,530

 
$
810

 
$
(341
)
The following table shows the notional amounts of the Company’s outstanding derivative instruments and credit risk amounts associated with outstanding or unsettled derivative instruments as of September 29, 2018 and September 30, 2017 (in millions):
 
2018
 
2017
 
Notional
Amount
 
Credit Risk
Amount
 
Notional
Amount
 
Credit Risk
Amount
Instruments designated as accounting hedges:
 
 
 
 
 
 
 
Foreign exchange contracts
$
65,368

 
$
1,015

 
$
56,156

 
$
1,049

Interest rate contracts
$
33,250

 
$
—

 
$
33,000

 
$
218

 
 
 
 
 
 
 
 
Instruments not designated as accounting hedges:
 
 
 
 
 
 
 
Foreign exchange contracts
$
63,062

 
$
259

 
$
69,774

 
$
363

The notional amounts for outstanding derivative instruments provide one measure of the transaction volume outstanding and do not represent the amount of the Company’s exposure to credit or market loss. The credit risk amounts represent the Company’s gross exposure to potential accounting loss on derivative instruments that are outstanding or unsettled if all counterparties failed to perform according to the terms of the contract, based on then-current currency or interest rates at each respective date. The Company’s exposure to credit loss and market risk will vary over time as currency and interest rates change. Although the table above reflects the notional and credit risk amounts of the Company’s derivative instruments, it does not reflect the gains or losses associated with the exposures and transactions that the instruments are intended to hedge. The amounts ultimately realized upon settlement of these financial instruments, together with the gains and losses on the underlying exposures, will depend on actual market conditions during the remaining life of the instruments.

Apple Inc. | 2018 Form 10-K | 50

The Company generally enters into master netting arrangements, which are designed to reduce credit risk by permitting net settlement of transactions with the same counterparty. To further limit credit risk, the Company generally enters into collateral security arrangements that provide for collateral to be received or posted when the net fair value of certain financial instruments fluctuates from contractually established thresholds. The Company presents its derivative assets and derivative liabilities at their gross fair values in its Consolidated Balance Sheets. As of September 29, 2018, the net cash collateral posted by the Company related to derivative instruments under its collateral security arrangements was $1.0 billion, which was recorded as other current assets in the Condensed Consolidated Balance Sheet. As of September 30, 2017, the net cash collateral received by the Company related to derivative instruments under its collateral security arrangements was $35 million, which was recorded as other current liabilities in the Consolidated Balance Sheet.
Under master netting arrangements with the respective counterparties to the Company’s derivative contracts, the Company is allowed to net settle transactions with a single net amount payable by one party to the other. As of September 29, 2018 and September 30, 2017, the potential effects of these rights of set-off associated with the Company’s derivative contracts, including the effects of collateral, would be a reduction to both derivative assets and derivative liabilities of $2.1 billion and $1.4 billion, respectively, resulting in net derivative assets of $138 million and $32 million, respectively.
Accounts Receivable
Trade Receivables
The Company has considerable trade receivables outstanding with its third-party cellular network carriers, wholesalers, retailers, resellers, small and mid-sized businesses and education, enterprise and government customers. The Company generally does not require collateral from its customers; however, the Company will require collateral or third-party credit support in certain instances to limit credit risk. In addition, when possible, the Company attempts to limit credit risk on trade receivables with credit insurance for certain customers or by requiring third-party financing, loans or leases to support credit exposure. These credit-financing arrangements are directly between the third-party financing company and the end customer. As such, the Company generally does not assume any recourse or credit risk sharing related to any of these arrangements.
As of September 29, 2018, the Company had one customer that represented 10% or more of total trade receivables, which accounted for 10%. As of September 30, 2017, the Company had two customers that individually represented 10% or more of total trade receivables, each of which accounted for 10%. The Company’s cellular network carriers accounted for 59% of total trade receivables as of both September 29, 2018 and September 30, 2017.
Vendor Non-Trade Receivables
The Company has non-trade receivables from certain of its manufacturing vendors resulting from the sale of components to these vendors who manufacture sub-assemblies or assemble final products for the Company. The Company purchases these components directly from suppliers. As of September 29, 2018, the Company had two vendors that individually represented 10% or more of total vendor non-trade receivables, which accounted for 62% and 12%. As of September 30, 2017, the Company had three vendors that individually represented 10% or more of total vendor non-trade receivables, which accounted for 42%, 19% and 10%.
Note 3 – Consolidated Financial Statement Details
The following tables show the Company’s consolidated financial statement details as of September 29, 2018 and September 30, 2017 (in millions):
Property, Plant and Equipment, Net
 
2018
 
2017
Land and buildings
$
16,216

 
$
13,587

Machinery, equipment and internal-use software
65,982

 
54,210

Leasehold improvements
8,205

 
7,279

Gross property, plant and equipment
90,403

 
75,076

Accumulated depreciation and amortization
(49,099
)
 
(41,293
)
Total property, plant and equipment, net
$
41,304

 
$
33,783


Apple Inc. | 2018 Form 10-K | 51

Other Non-Current Liabilities
 
2018
 
2017
Long-term taxes payable
$
33,589

 
$
257

Deferred tax liabilities
426

 
31,504

Other non-current liabilities
11,165

 
8,654

Total other non-current liabilities
$
45,180

 
$
40,415

Other Income/(Expense), Net
The following table shows the detail of other income/(expense), net for 2018, 2017 and 2016 (in millions):
 
2018
 
2017
 
2016
Interest and dividend income
$
5,686

 
$
5,201

 
$
3,999

Interest expense
(3,240
)
 
(2,323
)
 
(1,456
)
Other expense, net
(441
)
 
(133
)
 
(1,195
)
Total other income/(expense), net
$
2,005

 
$
2,745

 
$
1,348

Note 4 – Income Taxes
U.S. Tax Cuts and Jobs Act
On December 22, 2017, the U.S. enacted the Tax Cuts and Jobs Act (the “Act”), which significantly changed U.S. tax law. The Act lowered the Company’s U.S. statutory federal income tax rate from 35% to 21% effective January 1, 2018, while also imposing a deemed repatriation tax on previously deferred foreign income. The Act also created a new minimum tax on certain future foreign earnings. The impact of the Act increased the Company’s provision for income taxes by $1.5 billion during 2018. This increase was composed of $2.0 billion related to the remeasurement of net deferred tax assets and liabilities and $1.2 billion associated with the deemed repatriation tax, partially offset by a $1.7 billion impact the deemed repatriation tax had on the Company’s unrecognized tax benefits.
Deferred Tax Balances
As a result of the Act, the Company remeasured certain deferred tax assets and liabilities based on the revised rates at which they are expected to reverse, including items for which the related income tax effects were originally recognized in OCI. In addition, the Company elected to record certain deferred tax assets and liabilities related to the new minimum tax on certain future foreign earnings. Of the $2.0 billion recognized related to the remeasurement of net deferred tax assets and liabilities, $1.2 billion is a provisional estimate that incorporates assumptions based upon the most recent interpretations of the Act and may change as the Company continues to analyze the impact of additional implementation guidance. The Company’s provisional estimates are in accordance with the U.S. Securities and Exchange Commission Staff Accounting Bulletin No. 118.
Deemed Repatriation Tax
As of September 30, 2017, the Company had a U.S. deferred tax liability of $36.4 billion for deferred foreign income. During 2018, the Company replaced $36.1 billion of its U.S. deferred tax liability with a deemed repatriation tax payable of $37.3 billion, which was based on the Company’s cumulative post-1986 deferred foreign income. The deemed repatriation tax payable is a provisional estimate that may change as the Company continues to analyze the impact of additional implementation guidance. The Company plans to pay the tax in installments in accordance with the Act.
Adoption of ASU No. 2018-02
During the second quarter of 2018, the FASB issued ASU No. 2018-02, Income Statement – Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income (“ASU 2018-02”). ASU 2018-02 allows an entity to elect to reclassify the income tax effects of the Act on items within AOCI to retained earnings. The Company elected to apply the provision of ASU 2018-02 in 2018 with a reclassification of net tax benefits related to cumulative foreign currency translation and unrealized gains/losses on derivative instruments and marketable securities, resulting in a $278 million decrease in AOCI and a corresponding increase in retained earnings in the Consolidated Balance Sheet and Consolidated Statement of Shareholders’ Equity.

Apple Inc. | 2018 Form 10-K | 52

Provision for Income Taxes and Effective Tax Rate
The provision for income taxes for 2018, 2017 and 2016, consisted of the following (in millions):
 
2018
 
2017
 
2016
Federal:
 
 
 
 
 
Current
$
41,425

 
$
7,842

 
$
7,652

Deferred
(33,819
)
 
5,980

 
5,043

Total
7,606


13,822


12,695

State:
 
 
 
 
 
Current
551

 
259

 
990

Deferred
48

 
2

 
(138
)
Total
599


261


852

Foreign:
 
 
 
 
 
Current
3,986

 
1,671

 
2,105

Deferred
1,181

 
(16
)
 
33

Total
5,167


1,655


2,138

Provision for income taxes
$
13,372


$
15,738


$
15,685

The foreign provision for income taxes is based on foreign pre-tax earnings of $48.0 billion, $44.7 billion and $41.1 billion in 2018, 2017 and 2016, respectively.
A reconciliation of the provision for income taxes, with the amount computed by applying the statutory federal income tax rate (24.5% in 2018; 35% in 2017 and 2016) to income before provision for income taxes for 2018, 2017 and 2016, is as follows (dollars in millions):
 
2018
 
2017
 
2016
Computed expected tax
$
17,890

 
$
22,431

 
$
21,480

State taxes, net of federal effect
271

 
185

 
553

Impacts of the Act
1,515

 
—

 
—

Earnings of foreign subsidiaries
(5,606
)
 
(6,135
)
 
(5,582
)
Domestic production activities deduction
(195
)
 
(209
)
 
(382
)
Research and development credit, net
(560
)
 
(678
)
 
(371
)
Other
57

 
144

 
(13
)
Provision for income taxes
$
13,372


$
15,738


$
15,685

Effective tax rate
18.3
%
 
24.6
%
 
25.6
%
The Company’s income taxes payable have been reduced by the tax benefits from employee stock plan awards. For restricted stock units (“RSUs”), the Company receives an income tax benefit upon the award’s vesting equal to the tax effect of the underlying stock’s fair market value. Prior to adopting ASU 2016-09 in the first quarter of 2018, the Company reflected net excess tax benefits from equity awards as increases to additional paid-in capital, which amounted to $620 million and $379 million in 2017 and 2016, respectively. Refer to Note 1, “Summary of Significant Accounting Policies” for more information.

Apple Inc. | 2018 Form 10-K | 53

Deferred Tax Assets and Liabilities
As of September 29, 2018 and September 30, 2017, the significant components of the Company’s deferred tax assets and liabilities were (in millions):
 
2018
 
2017
Deferred tax assets:
 
 
 
Accrued liabilities and other reserves
$
3,151

 
$
4,019

Basis of capital assets
137

 
1,230

Deferred revenue
1,141

 
1,521

Deferred cost sharing
—

 
667

Share-based compensation
513

 
703

Unrealized losses
871

 
—

Other
797

 
834

Total deferred tax assets
6,610

 
8,974

Deferred tax liabilities:
 
 
 
Earnings of foreign subsidiaries
275

 
36,355

Other
501

 
207

Total deferred tax liabilities
776

 
36,562

Net deferred tax assets/(liabilities)
$
5,834


$
(27,588
)
Deferred tax assets and liabilities reflect the effects of tax losses, credits and the future income tax effects of temporary differences between the consolidated financial statement carrying amounts of existing assets and liabilities and their respective tax bases and are measured using enacted tax rates that apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.
Uncertain Tax Positions
As of September 29, 2018, the total amount of gross unrecognized tax benefits was $9.7 billion, of which $7.4 billion, if recognized, would impact the Company’s effective tax rate. As of September 30, 2017, the total amount of gross unrecognized tax benefits was $8.4 billion, of which $2.5 billion, if recognized, would have impacted the Company’s effective tax rate.
The aggregate changes in the balance of gross unrecognized tax benefits, which excludes interest and penalties, for 2018, 2017 and 2016, is as follows (in millions):
 
2018
 
2017
 
2016
Beginning balances
$
8,407

 
$
7,724

 
$
6,900

Increases related to tax positions taken during a prior year
2,431

 
333

 
1,121

Decreases related to tax positions taken during a prior year
(2,212
)
 
(952
)
 
(257
)
Increases related to tax positions taken during the current year
1,824

 
1,880

 
1,578

Decreases related to settlements with taxing authorities
(756
)
 
(539
)
 
(1,618
)
Decreases related to expiration of statute of limitations
—

 
(39
)
 
—

Ending balances
$
9,694

 
$
8,407

 
$
7,724

The Company includes interest and penalties related to unrecognized tax benefits within the provision for income taxes. As of September 29, 2018 and September 30, 2017, the total amount of gross interest and penalties accrued was $1.4 billion and $1.2 billion, respectively. Both the unrecognized tax benefits and the associated interest and penalties that are not expected to result in payment or receipt of cash within one year are classified as other non-current liabilities in the Consolidated Balance Sheets. In connection with tax matters, the Company recognized interest and penalty expense in 2018, 2017 and 2016 of $236 million, $165 million and $295 million, respectively.

Apple Inc. | 2018 Form 10-K | 54

The Company is subject to taxation and files income tax returns in the U.S. federal jurisdiction and in many state and foreign jurisdictions. The U.S. Internal Revenue Service (the “IRS”) concluded its review of the years 2013 through 2015 in 2018, and all years prior to 2016 are closed. Tax years subsequent to 2006 in certain major U.S. states and subsequent to 2007 in certain major foreign jurisdictions remain open, and could be subject to examination by the taxing authorities. The Company believes that an adequate provision has been made for any adjustments that may result from tax examinations. However, the outcome of tax audits cannot be predicted with certainty. If any issues addressed in the Company’s tax audits are resolved in a manner inconsistent with its expectations, the Company could be required to adjust its provision for income taxes in the period such resolution occurs. Although timing of resolution and/or closure of audits is not certain, the Company believes it is reasonably possible that its gross unrecognized tax benefits could decrease (either by payment, release or a combination of both) in the next 12 months by as much as $800 million.
European Commission State Aid Decision
On August 30, 2016, the European Commission announced its decision that Ireland granted state aid to the Company by providing tax opinions in 1991 and 2007 concerning the tax allocation of profits of the Irish branches of two subsidiaries of the Company (the “State Aid Decision”). The State Aid Decision ordered Ireland to calculate and recover additional taxes from the Company for the period June 2003 through December 2014. The recovery amount was calculated to be €13.1 billion, plus interest of €1.2 billion. Irish legislative changes, effective as of January 2015, eliminated the application of the tax opinions from that date forward. The Company believes the State Aid Decision to be without merit and appealed to the General Court of the Court of Justice of the European Union. Ireland has also appealed the State Aid Decision. The Company believes that any incremental Irish corporate income taxes potentially due related to the State Aid Decision would be creditable against U.S. taxes, subject to any foreign tax credit limitations in the Act. As of September 29, 2018, the entire recovery amount plus interest was funded into escrow, where it will remain restricted from general use pending conclusion of all appeals. Refer to Note 2, “Financial Instruments” for more information.
Note 5 – Debt
Commercial Paper
The Company issues unsecured short-term promissory notes (“Commercial Paper”) pursuant to a commercial paper program. The Company uses net proceeds from the commercial paper program for general corporate purposes, including dividends and share repurchases. As of both September 29, 2018 and September 30, 2017, the Company had $12.0 billion of Commercial Paper outstanding with maturities generally less than nine months. The weighted-average interest rate of the Company’s Commercial Paper was 2.18% as of September 29, 2018 and 1.20% as of September 30, 2017. The following table provides a summary of cash flows associated with the issuance and maturities of Commercial Paper for 2018, 2017 and 2016 (in millions):
 
2018
 
2017
 
2016
Maturities 90 days or less:
 
 
 
 
 
Proceeds from/(Repayments of) commercial paper, net
$
1,044

 
$
(1,782
)
 
$
(869
)
 
 
 
 
 
 
Maturities greater than 90 days:
 
 
 
 
 
Proceeds from commercial paper
14,555

 
17,932

 
3,632

Repayments of commercial paper
(15,636
)
 
(12,298
)
 
(3,160
)
Proceeds from/(Repayments of) commercial paper, net
(1,081
)

5,634

 
472

 
 
 
 
 
 
Total change in commercial paper, net
$
(37
)

$
3,852

 
$
(397
)

Apple Inc. | 2018 Form 10-K | 55

Term Debt
As of September 29, 2018, the Company had outstanding floating- and fixed-rate notes with varying maturities for an aggregate principal amount of $104.2 billion (collectively the “Notes”). The Notes are senior unsecured obligations, and interest is payable in arrears, quarterly for the U.S. dollar–denominated and Australian dollar–denominated floating-rate notes, semi-annually for the U.S. dollar–denominated, Australian dollar–denominated, British pound–denominated, Japanese yen–denominated and Canadian dollar–denominated fixed-rate notes and annually for the euro-denominated and Swiss franc–denominated fixed-rate notes. The following table provides a summary of the Company’s term debt as of September 29, 2018 and September 30, 2017:
 
Maturities
(calendar year)
 
2018
 
2017
 
Amount
(in millions)
 
Effective
Interest Rate
 
Amount
(in millions)
 
Effective
Interest Rate
2013 debt issuance of $17.0 billion:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Floating-rate notes
 
 
—
 
$
—

 
 
 
 
—
%
 
$
2,000

 
 
 
 
1.10
%
Fixed-rate 2.400% – 3.850% notes
2023
–
2043
 
8,500

 
 
2.44%
–
3.91
%
 
12,500

 
 
1.08%
–
3.91
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2014 debt issuance of $12.0 billion:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Floating-rate notes
 
 
2019
 
1,000

 
 
 
 
2.64
%
 
1,000

 
 
 
 
1.61
%
Fixed-rate 2.100% – 4.450% notes
2019
–
2044
 
8,500

 
 
2.64%
–
4.48
%
 
8,500

 
 
1.61%
–
4.48
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2015 debt issuances of $27.3 billion:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Floating-rate notes
2019
–
2020
 
1,507

 
 
1.87%
–
2.64
%
 
1,549

 
 
1.56%
–
1.87
%
Fixed-rate 0.350% – 4.375% notes
2019
–
2045
 
24,410

 
 
0.28%
–
4.51
%
 
24,522

 
 
0.28%
–
4.51
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2016 debt issuances of $24.9 billion:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Floating-rate notes
2019
–
2021
 
1,350

 
 
2.48%
–
3.44
%
 
1,350

 
 
1.45%
–
2.44
%
Fixed-rate 1.100% – 4.650% notes
2019
–
2046
 
23,059

 
 
1.13%
–
4.78
%
 
23,645

 
 
1.13%
–
4.78
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2017 debt issuances of $28.7 billion:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Floating-rate notes
2019
–
2022
 
3,250

 
 
2.41%
–
2.84
%
 
3,250

 
 
1.38%
–
1.81
%
Fixed-rate 0.875% – 4.300% notes
2019
–
2047
 
25,617

 
 
1.54%
–
4.30
%
 
25,705

 
 
1.51%
–
4.30
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
First quarter 2018 debt issuance of $7.0 billion:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Fixed-rate 1.800% notes
 
 
2019
 
1,000

 
 
 
 
1.83
%
 
—

 
 
 
 
—
%
Fixed-rate 2.000% notes
 
 
2020
 
1,000

 
 
 
 
2.03
%
 
—

 
 
 
 
—
%
Fixed-rate 2.400% notes
 
 
2023
 
750

 
 
 
 
2.66
%
 
—

 
 
 
 
—
%
Fixed-rate 2.750% notes
 
 
2025
 
1,500

 
 
 
 
2.77
%
 
—

 
 
 
 
—
%
Fixed-rate 3.000% notes
 
 
2027
 
1,500

 
 
 
 
3.05
%
 
—

 
 
 
 
—
%
Fixed-rate 3.750% notes
 
 
2047
 
1,250

 
 
 
 
3.80
%
 
—

 
 
 
 
—
%
Total term debt
 
 
 
 
104,193

 
 
 
 
 
 
104,021

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Unamortized premium/(discount) and issuance costs, net
 
 
 
 
(218
)
 
 
 
 
 
 
(225
)
 
 
 
 
 
Hedge accounting fair value adjustments
 
 
 
 
(1,456
)
 
 
 
 
 
 
(93
)
 
 
 
 
 
Less: Current portion of term debt
 
 
 
 
(8,784
)
 
 
 
 
 
 
(6,496
)
 
 
 
 
 
Total non-current portion of term debt
 
 
 
 
$
93,735

 
 
 
 
 
 
$
97,207

 
 
 
 
 
To manage interest rate risk on certain of its U.S. dollar–denominated fixed- or floating-rate notes, the Company has entered into interest rate swaps to effectively convert the fixed interest rates to floating interest rates or the floating interest rates to fixed interest rates on a portion of these notes. Additionally, to manage foreign currency risk on certain of its foreign currency–denominated notes, the Company has entered into foreign currency swaps to effectively convert these notes to U.S. dollar–denominated notes.
A portion of the Company’s Japanese yen–denominated notes is designated as a hedge of the foreign currency exposure of the Company’s net investment in a foreign operation. As of September 29, 2018 and September 30, 2017, the carrying value of the debt designated as a net investment hedge was $811 million and $1.6 billion, respectively. For further discussion regarding the Company’s use of derivative instruments, refer to the Derivative Financial Instruments section of Note 2, “Financial Instruments.”
The effective interest rates for the Notes include the interest on the Notes, amortization of the discount or premium and, if applicable, adjustments related to hedging. The Company recognized $3.0 billion, $2.2 billion and $1.4 billion of interest expense on its term debt for 2018, 2017 and 2016, respectively.

Apple Inc. | 2018 Form 10-K | 56

The future principal payments for the Company’s Notes as of September 29, 2018 are as follows (in millions):
2019
$
8,797

2020
10,183

2021
8,750

2022
8,583

2023
9,395

Thereafter
58,485

Total term debt
$
104,193

As of September 29, 2018 and September 30, 2017, the fair value of the Company’s Notes, based on Level 2 inputs, was $103.2 billion and $106.1 billion, respectively.
Note 6 – Shareholders’ Equity
Share Repurchase Program
During 2018, the Company repurchased 405.5 million shares of its common stock for $73.1 billion in connection with two separate share repurchase programs. Of the $73.1 billion, $44.0 billion was repurchased under the Company’s previous share repurchase program of up to $210 billion, thereby completing that program. On May 1, 2018, the Company announced the Board of Directors had authorized a new program to repurchase up to $100 billion of the Company’s common stock. The remaining $29.0 billion repurchased during 2018 was in connection with the new share repurchase program. The Company’s new share repurchase program does not obligate it to acquire any specific number of shares. Under this program, shares may be repurchased in privately negotiated and/or open market transactions, including under plans complying with Rule 10b5-1 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”).
Note 7 – Comprehensive Income
The Company’s OCI consists of foreign currency translation adjustments from those subsidiaries not using the U.S. dollar as their functional currency, net deferred gains and losses on certain derivative instruments accounted for as cash flow hedges and unrealized gains and losses on marketable securities classified as available-for-sale.
The following table shows the pre-tax amounts reclassified from AOCI into the Consolidated Statements of Operations, and the associated financial statement line item, for 2018 and 2017 (in millions):
Comprehensive Income Components
 
Financial Statement Line Item
 
2018
 
2017
Unrealized (gains)/losses on derivative instruments:
 
 
 
 
 
 
Foreign exchange contracts
 
Net sales
 
$
214

 
$
(662
)
 
 
Cost of sales
 
(70
)
 
(654
)
 
 
Other income/(expense), net
 
344

 
(638
)
Interest rate contracts
 
Other income/(expense), net
 
(2
)
 
2

 
 
 
 
486

 
(1,952
)
Unrealized (gains)/losses on marketable securities
 
Other income/(expense), net
 
(20
)
 
(99
)
Total amounts reclassified from AOCI
 
 
 
$
466

 
$
(2,051
)

Apple Inc. | 2018 Form 10-K | 57

The following table shows the changes in AOCI by component for 2018 and 2017 (in millions):
 
Cumulative Foreign
Currency Translation
 
Unrealized Gains/Losses
on Derivative Instruments
 
Unrealized Gains/Losses
on Marketable Securities
 
Total
Balances as of September 24, 2016
$
(578
)
 
$
38

 
$
1,174

 
$
634

Other comprehensive income/(loss) before reclassifications
301

 
1,793

 
(1,207
)
 
887

Amounts reclassified from AOCI
—

 
(1,952
)
 
(99
)
 
(2,051
)
Tax effect
(77
)
 
(3
)
 
460

 
380

Other comprehensive income/(loss)
224


(162
)

(846
)

(784
)
Balances as of September 30, 2017
(354
)
 
(124
)
 
328

 
(150
)
Other comprehensive income/(loss) before reclassifications
(524
)
 
672

 
(4,563
)
 
(4,415
)
Amounts reclassified from AOCI
—

 
486

 
(20
)
 
466

Tax effect
(1
)
 
(253
)
 
1,177

 
923

Other comprehensive income/(loss)
(525
)

905


(3,406
)

(3,026
)
Cumulative effect of change in accounting principle (1)
(176
)
 
29

 
(131
)
 
(278
)
Balances as of September 29, 2018
$
(1,055
)

$
810


$
(3,209
)

$
(3,454
)
(1)
Refer to Note 4, “Income Taxes” for more information on the Company’s adoption of ASU 2018-02 in 2018.
Note 8 – Benefit Plans
2014 Employee Stock Plan
In the second quarter of 2014, shareholders approved the 2014 Employee Stock Plan (the “2014 Plan”) and terminated the Company’s authority to grant new awards under the 2003 Employee Stock Plan (the “2003 Plan”). The 2014 Plan provides for broad-based equity grants to employees, including executive officers, and permits the granting of RSUs, stock grants, performance-based awards, stock options and stock appreciation rights, as well as cash bonus awards. RSUs granted under the 2014 Plan generally vest over four years, based on continued employment, and are settled upon vesting in shares of the Company’s common stock on a one-for-one basis. Each share issued with respect to RSUs granted under the 2014 Plan reduces the number of shares available for grant under the plan by two shares. RSUs canceled and shares withheld to satisfy tax withholding obligations increase the number of shares available for grant under the 2014 Plan utilizing a factor of two times the number of RSUs canceled or shares withheld. Currently, all RSUs granted under the 2014 Plan have dividend equivalent rights (“DERs”), which entitle holders of RSUs to the same dividend value per share as holders of common stock. DERs are subject to the same vesting and other terms and conditions as the corresponding unvested RSUs. DERs are accumulated and paid when the underlying shares vest. Upon approval of the 2014 Plan, the Company reserved 385 million shares plus the number of shares remaining that were reserved but not issued under the 2003 Plan. Shares subject to outstanding awards under the 2003 Plan that expire, are canceled or otherwise terminate, or are withheld to satisfy tax withholding obligations with respect to RSUs, will also be available for awards under the 2014 Plan. As of September 29, 2018, approximately 280.2 million shares were reserved for future issuance under the 2014 Plan.
Apple Inc. Non-Employee Director Stock Plan
The Apple Inc. Non-Employee Director Stock Plan (the “Director Plan”) is a shareholder-approved plan that (i) permits the Company to grant awards of RSUs or stock options to the Company’s non-employee directors, (ii) provides for automatic initial grants of RSUs upon a non-employee director joining the Board of Directors and automatic annual grants of RSUs at each annual meeting of shareholders, and (iii) permits the Board of Directors to prospectively change the value and relative mixture of stock options and RSUs for the initial and annual award grants and the methodology for determining the number of shares of the Company’s common stock subject to these grants, in each case within the limits set forth in the Director Plan and without further shareholder approval. Each share issued with respect to RSUs granted under the Director Plan reduces the number of shares available for grant under the plan by two shares. The Director Plan expires November 12, 2027. All RSUs granted under the Director Plan are entitled to DERs. DERs are subject to the same vesting and other terms and conditions as the corresponding unvested RSUs. DERs are accumulated and paid when the underlying shares vest. As of September 29, 2018, approximately 1.1 million shares were reserved for future issuance under the Director Plan.

Apple Inc. | 2018 Form 10-K | 58

Rule 10b5-1 Trading Plans
During the three months ended September 29, 2018, Section 16 officers Angela Ahrendts, Timothy D. Cook, Chris Kondo, Luca Maestri, Daniel Riccio, Philip Schiller and Jeffrey Williams had equity trading plans in place in accordance with Rule 10b5-1(c)(1) under the Exchange Act. An equity trading plan is a written document that pre-establishes the amounts, prices and dates (or formula for determining the amounts, prices and dates) of future purchases or sales of the Company’s stock, including shares acquired pursuant to the Company’s employee and director equity plans.
Employee Stock Purchase Plan
The Employee Stock Purchase Plan (the “Purchase Plan”) is a shareholder-approved plan under which substantially all employees may purchase the Company’s common stock through payroll deductions at a price equal to 85% of the lower of the fair market values of the stock as of the beginning or the end of six-month offering periods. An employee’s payroll deductions under the Purchase Plan are limited to 10% of the employee’s compensation and employees may not purchase more than $25,000 of stock during any calendar year. As of September 29, 2018, approximately 36.5 million shares were reserved for future issuance under the Purchase Plan.
401(k) Plan
The Company’s 401(k) Plan is a deferred salary arrangement under Section 401(k) of the Internal Revenue Code. Under the 401(k) Plan, participating U.S. employees may defer a portion of their pre-tax earnings, up to the IRS annual contribution limit ($18,500 for calendar year 2018). The Company matches 50% to 100% of each employee’s contributions, depending on length of service, up to a maximum 6% of the employee’s eligible earnings.
Restricted Stock Units
A summary of the Company’s RSU activity and related information for 2018, 2017 and 2016, is as follows:
 
Number of
RSUs
(in thousands)
 
Weighted-Average
Grant Date Fair
Value Per RSU
 
Aggregate Fair Value
(in millions)
Balance as of September 26, 2015
101,467

 
$
85.77

 
 
RSUs granted
49,468

 
$
109.28

 
 
RSUs vested
(46,313
)
 
$
84.44

 
 
RSUs canceled
(5,533
)
 
$
96.48

 
 
Balance as of September 24, 2016
99,089

 
$
97.54

 
 
RSUs granted
50,112

 
$
121.65

 
 
RSUs vested
(45,735
)
 
$
95.48

 
 
RSUs canceled
(5,895
)
 
$
106.87

 
 
Balance as of September 30, 2017
97,571

 
$
110.33

 
 
RSUs granted
45,351

 
$
162.86

 
 
RSUs vested
(44,718
)
 
$
111.24

 
 
RSUs canceled
(6,049
)
 
$
127.82

 
 
Balance as of September 29, 2018
92,155

 
$
134.60

 
$
20,803

The fair value as of the respective vesting dates of RSUs was $7.6 billion, $6.1 billion and $5.1 billion for 2018, 2017 and 2016, respectively. The majority of RSUs that vested in 2018, 2017 and 2016 were net share settled such that the Company withheld shares with value equivalent to the employees’ obligation for the applicable income and other employment taxes, and remitted the cash to the appropriate taxing authorities. The total shares withheld were approximately 16.0 million, 15.4 million and 15.9 million for 2018, 2017 and 2016, respectively, and were based on the value of the RSUs on their respective vesting dates as determined by the Company’s closing stock price. Total payments for the employees’ tax obligations to taxing authorities were $2.7 billion, $2.0 billion and $1.7 billion in 2018, 2017 and 2016, respectively, and are reflected as a financing activity within the Consolidated Statements of Cash Flows. These net share settlements had the effect of share repurchases by the Company as they reduced the number of shares that would have otherwise been issued as a result of the vesting and did not represent an expense to the Company.

Apple Inc. | 2018 Form 10-K | 59

Share-Based Compensation
The following table shows a summary of the share-based compensation expense included in the Consolidated Statements of Operations for 2018, 2017 and 2016 (in millions):
 
2018
 
2017
 
2016
Cost of sales
$
1,010

 
$
877

 
$
769

Research and development
2,668

 
2,299

 
1,889

Selling, general and administrative
1,662

 
1,664

 
1,552

Total share-based compensation expense
$
5,340


$
4,840


$
4,210

The income tax benefit related to share-based compensation expense was $1.9 billion, $1.6 billion and $1.4 billion for 2018, 2017 and 2016, respectively. As of September 29, 2018, the total unrecognized compensation cost related to outstanding RSUs and stock options was $9.4 billion, which the Company expects to recognize over a weighted-average period of 2.5 years.
Note 9 – Commitments and Contingencies
Accrued Warranty and Indemnification
The following table shows changes in the Company’s accrued warranties and related costs for 2018, 2017 and 2016 (in millions):
 
2018
 
2017
 
2016
Beginning accrued warranty and related costs
$
3,834

 
$
3,702

 
$
4,780

Cost of warranty claims
(4,115
)
 
(4,322
)
 
(4,663
)
Accruals for product warranty
3,973

 
4,454

 
3,585

Ending accrued warranty and related costs
$
3,692


$
3,834


$
3,702

Agreements entered into by the Company may include indemnification provisions which may subject the Company to costs and damages in the event of a claim against an indemnified third party. Except as disclosed under the heading “Contingencies” below, in the opinion of management, there was not at least a reasonable possibility the Company may have incurred a material loss, or a material loss in excess of a recorded accrual, with respect to indemnification of third parties.
The Company offers an iPhone Upgrade Program, which is available to customers who purchase a qualifying iPhone in the U.S., the U.K. and mainland China. The iPhone Upgrade Program provides customers the right to trade in that iPhone for a specified amount when purchasing a new iPhone, provided certain conditions are met. The Company accounts for the trade-in right as a guarantee liability and recognizes arrangement revenue net of the fair value of such right, with subsequent changes to the guarantee liability recognized within revenue.
The Company has entered into indemnification agreements with its directors and executive officers. Under these agreements, the Company has agreed to indemnify such individuals to the fullest extent permitted by law against liabilities that arise by reason of their status as directors or officers of the Company, and to advance expenses incurred by such individuals in connection with related legal proceedings. It is not possible to determine the maximum potential amount of payments the Company could be required to make under these agreements due to the limited history of prior indemnification claims and the unique facts and circumstances involved in each claim. While the Company maintains directors and officers liability insurance coverage, such insurance coverage may be insufficient to cover all losses or all types of claims that may arise.
Concentrations in the Available Sources of Supply of Materials and Product
Although most components essential to the Company’s business are generally available from multiple sources, certain components are currently obtained from single or limited sources. In addition, the Company competes for various components with other participants in the markets for mobile communication and media devices and personal computers. Therefore, many components used by the Company, including those that are available from multiple sources, are at times subject to industry-wide shortage and significant commodity pricing fluctuations that could materially adversely affect the Company’s financial condition and operating results.

Apple Inc. | 2018 Form 10-K | 60

The Company uses some custom components that are not commonly used by its competitors, and new products introduced by the Company often utilize custom components available from only one source. When a component or product uses new technologies, initial capacity constraints may exist until the suppliers’ yields have matured or manufacturing capacity has increased. If the Company’s supply of components for a new or existing product were delayed or constrained, or if an outsourcing partner delayed shipments of completed products to the Company, the Company’s financial condition and operating results could be materially adversely affected. The Company’s business and financial performance could also be materially adversely affected depending on the time required to obtain sufficient quantities from the original source, or to identify and obtain sufficient quantities from an alternative source. Continued availability of these components at acceptable prices, or at all, may be affected if suppliers decide to concentrate on the production of common components instead of components customized to meet the Company’s requirements.
The Company has entered into agreements for the supply of many components; however, there can be no guarantee that the Company will be able to extend or renew these agreements on similar terms, or at all. Therefore, the Company remains subject to significant risks of supply shortages and price increases that could materially adversely affect its financial condition and operating results.
Substantially all of the Company’s hardware products are manufactured by outsourcing partners that are located primarily in Asia, with some Mac computers manufactured in the U.S. and Ireland. A significant concentration of this manufacturing is currently performed by a small number of outsourcing partners, often in single locations. Certain of these outsourcing partners are single-sourced suppliers of components and manufacturers for many of the Company’s products. Although the Company works closely with its outsourcing partners on manufacturing schedules, the Company’s financial condition and operating results could be materially adversely affected if its outsourcing partners were unable to meet their production commitments. The Company’s manufacturing purchase obligations typically cover its requirements for periods up to 150 days.
Other Off–Balance Sheet Commitments
Operating Leases
The Company leases various equipment and facilities, including retail space, under noncancelable operating lease arrangements. The Company does not currently utilize any other off–balance sheet financing arrangements. As of September 29, 2018, the Company’s total future minimum lease payments under noncancelable operating leases were $9.6 billion. The Company’s retail store and other facility leases typically have original terms not exceeding 10 years and generally contain multi-year renewal options.
Rent expense under all operating leases, including both cancelable and noncancelable leases, was $1.2 billion, $1.1 billion and $939 million in 2018, 2017 and 2016, respectively. Future minimum lease payments under noncancelable operating leases having initial or remaining terms in excess of one year as of September 29, 2018, are as follows (in millions):
2019
$
1,298

2020
1,289

2021
1,218

2022
1,038

2023
800

Thereafter
3,984

Total
$
9,627

Unconditional Purchase Obligations
The Company has entered into certain off–balance sheet arrangements which require the future purchase of goods or services (“unconditional purchase obligations”). The Company’s unconditional purchase obligations primarily consist of payments for supplier arrangements, internet and telecommunication services and intellectual property licenses. Future payments under noncancelable unconditional purchase obligations having a remaining term in excess of one year as of September 29, 2018, are as follows (in millions):
2019
$
2,447

2020
3,202

2021
1,749

2022
1,596

2023
268

Thereafter
66

Total
$
9,328


Apple Inc. | 2018 Form 10-K | 61

Contingencies
The Company is subject to various legal proceedings and claims that have arisen in the ordinary course of business and that have not been fully adjudicated, as further discussed in Part I, Item 1A of this Form 10-K under the heading “Risk Factors” and in Part I, Item 3 of this Form 10-K under the heading “Legal Proceedings.” The outcome of litigation is inherently uncertain. If one or more legal matters were resolved against the Company in a reporting period for amounts in excess of management’s expectations, the Company’s financial condition and operating results for that reporting period could be materially adversely affected. In the opinion of management, there was not at least a reasonable possibility the Company may have incurred a material loss, or a material loss in excess of a recorded accrual, with respect to loss contingencies for asserted legal and other claims, except for the following matters:
VirnetX
VirnetX, Inc. filed two lawsuits in the U.S. District Court for the Eastern District of Texas (the “Eastern Texas District Court”) against the Company alleging that certain Company products infringe four patents (the “VirnetX Patents”) relating to network communications technology (“VirnetX I” and “VirnetX II”). On September 30, 2016, a jury returned a verdict in VirnetX I against the Company and awarded damages of $302 million, which later increased to $440 million in post-trial proceedings. VirnetX I is currently on appeal at the U.S. Court of Appeals for the Federal Circuit (the “Federal Circuit”). On April 11, 2018, a jury returned a verdict in VirnetX II against the Company and awarded damages of $503 million. VirnetX II is currently on appeal. The Company has challenged the validity of the VirnetX Patents at the U.S. Patent and Trademark Office (the “PTO”). In response, the PTO has declared the VirnetX Patents invalid. VirnetX has appealed, and those appeals are currently pending at the Federal Circuit. The Federal Circuit has consolidated the Company’s appeal of the Eastern Texas District Court VirnetX I verdict and VirnetX’s appeals from the PTO invalidity proceedings. The Company believes it will prevail on the merits.
Qualcomm
On January 20, 2017, the Company filed a lawsuit against Qualcomm Incorporated and affiliated parties (“Qualcomm”) in the U.S. District Court for the Southern District of California seeking, among other things, to enjoin Qualcomm from requiring the Company to pay royalties at the rate demanded by Qualcomm. As the Company does not believe the demanded royalty it has historically paid contract manufacturers for each applicable device is fair, reasonable and non-discriminatory, and believes it to be invalid and/or overstated in other respects as well, no Qualcomm-related royalty payments have been remitted by the Company to its contract manufacturers since the beginning of the second quarter of 2017. The Company believes it will prevail on the merits of the case and has accrued its best estimate for the ultimate resolution of this matter.
Note 10 – Segment Information and Geographic Data
The Company reports segment information based on the “management” approach. The management approach designates the internal reporting used by management for making decisions and assessing performance as the source of the Company’s reportable segments.
The Company manages its business primarily on a geographic basis. The Company’s reportable segments consist of the Americas, Europe, Greater China, Japan and Rest of Asia Pacific. Americas includes both North and South America. Europe includes European countries, as well as India, the Middle East and Africa. Greater China includes China, Hong Kong and Taiwan. Rest of Asia Pacific includes Australia and those Asian countries not included in the Company’s other reportable segments. Although the reportable segments provide similar hardware and software products and similar services, each one is managed separately to better align with the location of the Company’s customers and distribution partners and the unique market dynamics of each geographic region. The accounting policies of the various segments are the same as those described in Note 1, “Summary of Significant Accounting Policies.”
The Company evaluates the performance of its reportable segments based on net sales and operating income. Net sales for geographic segments are generally based on the location of customers and sales through the Company’s retail stores located in those geographic locations. Operating income for each segment includes net sales to third parties, related cost of sales and operating expenses directly attributable to the segment. Advertising expenses are generally included in the geographic segment in which the expenditures are incurred. Operating income for each segment excludes other income and expense and certain expenses managed outside the reportable segments. Costs excluded from segment operating income include various corporate expenses such as research and development, corporate marketing expenses, certain share-based compensation expenses, income taxes, various nonrecurring charges and other separately managed general and administrative costs. The Company does not include intercompany transfers between segments for management reporting purposes.

Apple Inc. | 2018 Form 10-K | 62

The following table shows information by reportable segment for 2018, 2017 and 2016 (in millions):
 
2018
 
2017
 
2016
Americas:
 
 
 
 
 
Net sales
$
112,093

 
$
96,600

 
$
86,613

Operating income
$
34,864

 
$
30,684

 
$
28,172

 
 
 
 
 
 
Europe:
 
 
 
 
 
Net sales
$
62,420

 
$
54,938

 
$
49,952

Operating income
$
19,955

 
$
16,514

 
$
15,348

 
 
 
 
 
 
Greater China:
 
 
 
 
 
Net sales
$
51,942

 
$
44,764

 
$
48,492

Operating income
$
19,742

 
$
17,032

 
$
18,835

 
 
 
 
 
 
Japan:
 
 
 
 
 
Net sales
$
21,733

 
$
17,733

 
$
16,928

Operating income
$
9,500

 
$
8,097

 
$
7,165

 
 
 
 
 
 
Rest of Asia Pacific:
 
 
 
 
 
Net sales
$
17,407

 
$
15,199

 
$
13,654

Operating income
$
6,181

 
$
5,304

 
$
4,781

A reconciliation of the Company’s segment operating income to the Consolidated Statements of Operations for 2018, 2017 and 2016 is as follows (in millions):
 
2018
 
2017
 
2016
Segment operating income
$
90,242

 
$
77,631

 
$
74,301

Research and development expense
(14,236
)
 
(11,581
)
 
(10,045
)
Other corporate expenses, net
(5,108
)
 
(4,706
)
 
(4,232
)
Total operating income
$
70,898

 
$
61,344

 
$
60,024

The U.S. and China were the only countries that accounted for more than 10% of the Company’s net sales in 2018, 2017 and 2016. There was no single customer that accounted for more than 10% of net sales in 2018, 2017 and 2016. Net sales for 2018, 2017 and 2016 and long-lived assets as of September 29, 2018 and September 30, 2017 were as follows (in millions):
 
2018
 
2017
 
2016
Net sales:
 
 
 
 
 
U.S.
$
98,061

 
$
84,339

 
$
75,667

China (1)
51,942

 
44,764

 
48,492

Other countries
115,592

 
100,131

 
91,480

Total net sales
$
265,595


$
229,234


$
215,639

 
2018
 
2017
Long-lived assets:
 
 
 
U.S.
$
23,963

 
$
20,637

China (1)
13,268

 
10,211

Other countries
4,073

 
2,935

Total long-lived assets
$
41,304

 
$
33,783

(1)
China includes Hong Kong and Taiwan. Long-lived assets located in China consist primarily of product tooling and manufacturing process equipment and assets related to retail stores and related infrastructure.

Apple Inc. | 2018 Form 10-K | 63

Net sales by product for 2018, 2017 and 2016 were as follows (in millions):
 
2018
 
2017
 
2016
iPhone (1)
$
166,699

 
$
141,319

 
$
136,700

iPad (1)
18,805

 
19,222

 
20,628

Mac (1)
25,484

 
25,850

 
22,831

Services (2)
37,190

 
29,980

 
24,348

Other Products (1)(3)
17,417

 
12,863

 
11,132

Total net sales
$
265,595


$
229,234


$
215,639

 
(1)
Includes deferrals and amortization of related software upgrade rights and non-software services.
(2)
Includes revenue from Digital Content and Services, AppleCare, Apple Pay, licensing and other services. Services net sales in 2018 included a favorable one-time item of $236 million in connection with the final resolution of various lawsuits. Services net sales in 2017 included a favorable one-time adjustment of $640 million due to a change in estimate based on the availability of additional supporting information.
(3)
Includes sales of AirPods, Apple TV, Apple Watch, Beats products, HomePod, iPod touch and other Apple-branded and third-party accessories.
Note 11 – Selected Quarterly Financial Information (Unaudited)
The following tables show a summary of the Company’s quarterly financial information for each of the four quarters of 2018 and 2017 (in millions, except per share amounts):
 
Fourth Quarter
 
Third Quarter
 
Second Quarter
 
First Quarter
2018:
 
 
 
 
 
 
 
Net sales
$
62,900

 
$
53,265

 
$
61,137

 
$
88,293

Gross margin
$
24,084

 
$
20,421

 
$
23,422

 
$
33,912

Net income
$
14,125

 
$
11,519

 
$
13,822

 
$
20,065

 
 
 
 
 
 
 
 
Earnings per share (1):
 
 
 
 
 
 
 
Basic
$
2.94

 
$
2.36

 
$
2.75

 
$
3.92

Diluted
$
2.91

 
$
2.34

 
$
2.73

 
$
3.89

 
Fourth Quarter
 
Third Quarter
 
Second Quarter
 
First Quarter
2017:
 
 
 
 
 
 
 
Net sales
$
52,579

 
$
45,408

 
$
52,896

 
$
78,351

Gross margin
$
19,931

 
$
17,488

 
$
20,591

 
$
30,176

Net income
$
10,714

 
$
8,717

 
$
11,029

 
$
17,891

 
 
 
 
 
 
 
 
Earnings per share (1):
 
 
 
 
 
 
 
Basic
$
2.08

 
$
1.68

 
$
2.11

 
$
3.38

Diluted
$
2.07

 
$
1.67

 
$
2.10

 
$
3.36

 
(1)
Basic and diluted earnings per share are computed independently for each of the quarters presented. Therefore, the sum of quarterly basic and diluted per share information may not equal annual basic and diluted earnings per share.

Apple Inc. | 2018 Form 10-K | 64


Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of Apple Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Apple Inc. as of September 29, 2018 and September 30, 2017, and the related consolidated statements of operations, comprehensive income, shareholders’ equity and cash flows for each of the three years in the period ended September 29, 2018, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of Apple Inc. at September 29, 2018 and September 30, 2017, and the results of its operations and its cash flows for each of the three years in the period ended September 29, 2018, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (the “PCAOB”), Apple Inc.’s internal control over financial reporting as of September 29, 2018, based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated November 5, 2018 expressed an unqualified opinion thereon.
Basis for Opinion
These financial statements are the responsibility of Apple Inc.’s management. Our responsibility is to express an opinion on Apple Inc.’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to Apple Inc. in accordance with the U.S. federal securities laws and the applicable rules and regulations of the U.S. Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.


/s/ Ernst & Young LLP
We have served as Apple Inc.’s auditor since 2009.

San Jose, California
November 5, 2018

Apple Inc. | 2018 Form 10-K | 65


Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of Apple Inc.
Opinion on Internal Control over Financial Reporting
We have audited Apple Inc.’s internal control over financial reporting as of September 29, 2018, based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the “COSO criteria”). In our opinion, Apple Inc. maintained, in all material respects, effective internal control over financial reporting as of September 29, 2018, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (the “PCAOB”), the consolidated balance sheets of Apple Inc. as of September 29, 2018 and September 30, 2017, and the related consolidated statements of operations, comprehensive income, shareholders’ equity and cash flows for each of the three years in the period ended September 29, 2018, and the related notes and our report dated November 5, 2018 expressed an unqualified opinion thereon.
Basis for Opinion
Apple Inc.’s management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Annual Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on Apple Inc.’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to Apple Inc. in accordance with the U.S. federal securities laws and the applicable rules and regulations of the U.S. Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.


/s/ Ernst & Young LLP

San Jose, California
November 5, 2018

Apple Inc. | 2018 Form 10-K | 66

Generated on 2025-09-19 00:52:59